All moving average combinations deliver whipsaw losses and they all lag the real action. Be aware that there is no magic combination for a single currency or across all Forex prices. Some traders try to game the market by using oddball combinations, like 7 and 13, or 15 and 30. You are free to experiment with other combinations of moving averages, especially if the 20-period delivers too many whipsaws. We cannot verify this lore with historical data, but some traders count on it and will always short a currency that crosses the 10-day with a profit target a few points short of the 20-day. Note that one bit of Forex trading lore has it that if the price breaks the 10-period moving average, it will continue to just a hair shy of the 20-day. Chart example with 10-day and 20-day moving averages crossover Note that most charts of this duration will have at least one or two whipsaw losses. Each trade on this chart would have been profitable. There is an interesting space near the center of the chart where the blue 10-day rises to approach to the 20-day but it does not actually cross it. This chart has five crossovers and one apparently about to occur at the end of the price series. The example chart below is showing the blue 10-day moving average plotted against the red 20-day. Some technical analysts apply the word “breakout” to the crossover. We have been observing this particular moving average daily on multiple Forex charts combination since 1979 and can affirm that it is a reliable indicator of direction change in Forex more than half the time. You should sell when the 20-day crosses the 10-day to the downside. You still get them, but they will be fewer in number.Ī classic example is when the 10-day crosses above the 20-day, you should buy. Using two moving averages instead of the price crossing a moving average reduces whipsaws. You can get a better buy-sell trading signal from the crossover of two moving averages. As discussed in the previous lesson, the price crossing a moving average is a valid trading rule but it delivers a lot of whipsaw losses. Fairly objective day-trading strategy, though finding the right buy/sell signal may take some practice.You can get a better idea of the direction a price is moving by looking at moving averages than by eyeballing the raw chart alone.The average holding period can range from a few days to a week because it is based on the H4 chart.Integrated risk management, where each trade has an ideal risk/reward ratio of at least 1:2.It is a low-risk trading strategy because you will only enter after the trend has been established.On the other hand, below is the list of benefits you can gain by adopting this trading strategy: It means a wasted opportunity, but you should still follow the rules instead of arbitrarily opening new trades without proper considerations. Second, prices do not always retrace and continue to rise even when all conditions are satisfied. First, trade set-ups don't happen very often, which may obstruct active traders who seek to gain a daily profit. There are two drawbacks to employing this trading approach. This day-trading strategy, too, has its own advantages and disadvantages. There is no infallible trading setup in the world.
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