How do I trade moving averages?
Moving Average strategies are a trading system for both Forex, Stocks or Futures, which are used to detect trends, support and resistance. In this trading strategy we are offered entry and exit signals when the price cuts the Moving Average. Moving Averages from different timeframes are often combined in this trading strategy:
- Short-term: between 3 and 25 periods
- In the medium term: between 30 and 75 periods
- Long-term: between 100 and 250 periods
Among the most important Moving Averages in trading we find the Moving Average of 50 and 200 sessions as a benchmark among most investors. Moving averages are good trend indicators, but in sideways trends they offer a lot of erroneous and contradictory signals. It is a trading system that requires prior analysis to take it into account as a trend strategy. This trading strategy is widespread among Forex traders.
The main trading strategies (Forex, Stocks, Futures, etc) with Moving Averages are based on the price crossing over the average and the average crossing. It should be noted that moving averages can be optimized to calculate what number of sessions is best for higher returns. Moving averages are still one of the most used trading indicators in the market.
Price crosses the Moving Average
In the graph we can see an example of what operations would be carried out in the case of following a trading strategy “price crosses the Simple Moving Average of 20 Periods”. In green, in this system with these indicators, the buy signals and in red the sell signals or the opening of shorts in the market. We can verify that when the market is in a lateral trend, many wrong signals are offered, but when it is in a clear trend, the operation goes well (this analysis is important). That is why it is one of the most used indicators as trading strategies in the Forex, Stocks and Futures market.
It is important to note that when the Moving Average begins to lose slope and become flat, it indicates that the trend is exhausting itself.
Stocking Crossing
In the example we see the strategy on a Forex chart, in which the crossing of a 13-period Exponential Moving Average (blue) and a 70-period Moving Average (red). We can see how a long-term strategy can go well with the crossover as it avoids a lot of wrong signals in this trading system. The strategy would be to buy when the blue moving average crosses the red moving average below and sell when the blue crosses below the red moving average. This strategy is very simple and can be practiced by all traders in trending markets.
Support and Resistance with Moving Averages
In the Forex chart we can see how the Simple 200 Session Moving Average also indicates some Support (green arrow) and Resistance (red arrow). So simple is this strategy that all traders can put into practice in the market they wish to trade, be it Forex, Stocks or Futures.
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