Moving Average Forex trading Strategies
There are a number of different reasons why forex traders use moving average forex trading strategies. Some traders look at these averages as their main analysis of the market, while others use them to build confidence. There are a few strategies which you can use to incorporate these moving averages into your trading system.
Crossover Forex Trading Strategies
One of the most basic forex signals is the crossover and it is often favoured by many traders. There are different types of crossovers and the most basic is when the price of the currency pair moves from 1 side of the average to the other. These price crossovers indicate a shift in the momentum of the trend and can be used as a simple entry and exit system.
The second kind of crossover you should be aware of is when a short-term average crosses a long-term average. The signal is used to spot a shift in momentum and the coming of a string move. The buy signal at this point is when the short-term average crosses above a long-term. The sell signal comes when the short-term crosses below a long-term average.
Triple Crossovers and moving Average Ribbons
To increase the strength of a signal supplementary moving averages can be added to a chart. A lot of traders place 5, 10 as well as 20 day moving averages onto a single chart and wait for the 5 day average to cross the others. When this happens it is the primary buy signal for the trader. Waiting until the 10 day average crosses above the 20 day average is a good confirmation and helps to reduce the amount of false signals. When you increase the number of moving averages on a chart you create one of the best ways to gauge trend strength.
There are a number of traders who believe that if having more than one average is useful have 10 or more is better. These traders employ the moving average ribbon technique. Having this ribbon increases the ability to judge the strength of the current trend. If all of the averages are moving in the same direction then the trend is strong and reversals are indicated by averages crossing each other.
To increase your confidence in a trade filters is the technique which should be used. While the use of filters does limit the number of false signals you have there are some drawbacks as well. The main drawback is that using filters limits the amount of profit you could be making.
Moving Average Envelopes
The envelope is the last type of moving average strategy that you should be aware of. This strategy has two bands around the moving average. These bands are staggered by percentage rates and the most common is 5%. If the price moves beyond a band then this could signal and exhaustion and a reversal may soon be coming.
There are a number of moving average strategies that you can use. These strategies can be used to identify entry and exit signals or to simply boost your confidence regarding a trade you are going to enter.