When it comes to moving average, I bet most of you will be pretty familiar with this forex trading indicator. However in this post today, I will be sharing with you how I trade the moving average crossover and hope that you can have another forex trading strategy in your trading arsenal.
Below are the indicators that you need in order to trade the moving average crossover
- 20 and 50 EMA
- Stochastic (Default 5, 3, 3 setting)
- Moving Average Convergence Divergence (Default 12, 26, 9 setting)
As usual, I will not specific the time frame to trade this strategy as it is applicable to any time frame you are interested to trade in. This method can be used in short term, medium term and long term trading.
One thing to let you know is that if you are going to trade this strategy on a higher time frame, you will have to be able to withstand higher stop loss.
Here are how I trade the moving average crossover:
1) Look for entry opportunity – When you are trading this strategy, you should be waiting for the 20 EMA to crossover the 50 EMA. If you see the 20 EMA crossing above the 50 EMA, you are looking to enter a LONG trade and if you see the opposite, you are looking for a SHORT trade. However you should not enter a trade once you see a crossover, you need the other 2 indicators to give you a better chance of winning. From the image below, you can see that there are times where the price will reverse and move back up after a crossover.
2) Check for overbought or oversold – If you are looking to enter a LONG trade, you should check the Stochastic to see if it is oversold and started to move up. If you are looking to enter a SHORT trade, you should check the Stochastic to see if it is overbought and started to move down.
3) Verify breakout – With the above 2 signs, you should now check your MACD to see if you have a valid breakout.
With all the above 3 indicators showing the same signs, it is time for you to enter your trade. However there are times where you will experience losses even when all the indicators are showing the same signal. As a trader, you have to understand that losing is simply part of the game.
I hope that you find this strategy useful and eventually add it to your trading arsenal. Please try this out on a demo account until you are able to trade profitable with it before moving into live trading.
Note to Readers
Do note that the above strategy is a general forex strategy that has not been fine tuned. In order for you to trade with it, please fine it tune on a demo account. If you do not know how to fine tune a strategy, please read the below
For those of you who are totally new to forex trading, I will suggest that you read through this blog post that I have written for beginners
If you are interested to learn how I do my forex technical analysis, you can take a look at the post below