today I will reveal the best strategy that you can use with
the moving average indicator so the strategy is called the moving average
crossover is a very simple and famous strategy but most traders are actually
trading it the wrong way the biggest mistake that everyone makes when trading
the strategy is every time the moving average crosses over they immediately
take a position when the faster moving average crosses above the slower moving
average they immediately take a buy position and when the faster-moving average
crosses below the slower moving average they immediately take a sell position
this is actually the worst way of trading the moving average crossover because
using the strategy this way only works if the market is trending if the market
is on a range like this you will receive so many false signals and this will
wipe out your account very quickly
the next mistake that people make when trading the moving
average crossover is that they use too many moving averages remember the more
moving averages that you use the later your entry signals will be for example
let's say you're using two moving averages the 20 and the 50 period so if the
20 period crosses above the 50 period you take a buy position here but if you
added another moving average let's say the 200 period then you would instead
enter here which is a much later entry compared to if you only used two moving
averages so the lesser the better another mistake that people make when trading
the crossover strategy is that they're trading it on lower time frames lower
time frames tend to have less trend and more range markets so that is why most
traders lose money when trading the crossover on lower time frames so instead
this is how I would trade the moving average crossover i'm only going to be
using two moving averages the 20 and the 50 period
the first step is that I would choose a high time frame i
recommend using the daily time frame for this strategy but if you think that
that's too high then you can just use the one hour chart instead next I would
pick a pair then what I'm trying to look at is how the market is reacting to
the moving average crossover let me show you what I mean if you zoom out and
look closely at the 20 and 50 period you can see that the price tend to not
react to the crossover here we can see that the moving average crosses over
downwards but instead of following the crossover and also heading downwards the
price instead reverses and heads back up and now you can see it again here the
moving average crosses upwards but the price instead went downwards so clearly
this market has a history of not reacting to the crossover and so I will not
use the crossover strategy on this market so
let's look at another pair instead here's the euro GBP if
you zoom out and look closely at the 20 and 50 period we can actually see that
the market tends to react to the crossover over here we can see that the moving
average crosses over upwards and the price followed that signal and made an
uptrend next you can see it happening again here the moving average crosses
over downwards and the price made a downtrend this has actually happened
multiple times in this chart every time the moving average crosses over the
market tends to follow that same direction and so now we know that this market has
a history of following the crossover so I will confidently trade the crossover
strategy on this market but remember just because a market reacted to the
crossover in the past doesn't guarantee 100 that it's going to do that again in
the future however it will still have a much higher chance of doing so compared
to the market that never reacted to the crossover in the first place so once
you identified
the right market it's time to trade the crossover for your
entry signal if the ma crosses above the 50 ma you take a buy position and if
the 20 ma crosses below the 50 ma you take a cell position and for your exit
signal you can use an exit indicator like the atr trailing stop loss to exit
your trades this will give a much better exit compared to if you waited for the
moving average to cross over again for example let's say you took a buy
position here if you waited for the lines to cross over again you would have
exited your trade here and wasted so many pips but if you had used a better
exit indicator like the atr trailing stop loss you would instead exit here
notice that it gave a much better exit signal and you would have kept more pips
so
that's my approach when trading the moving average crossover
another way of using the moving average is by trading it like support and
resistance and another indicator that is perfect for the strategy is the
stochastics so here's an example on how the strategy works in this chart we can
see that the price went up to this level it hit and reverses downwards this
happened multiple times which further confirms that the moving average is
acting as a resistance next we also noticed a pattern every time prices went up
to the resistance, while the stochastics is at overbought the price tends to
reverse downwards and now as you can see in the current price we are back at
the resistance level while the stochastics is at overbought so this is a good
opportunity to take a sell position let's look at another example in this chart
we can see that the moving average is acting as support as prices went down
to this level hit and reverses upwards multiple times and we also noticed that
the same pattern has formed every time prices went down to the moving average
while the stochastics is that oversold the price tends to reverse back up so now
as we look at the current price you can see that it is back at the support line
while the stochastics is that oversold so this is a good
opportunity to take a buy position another moving average strategy that you can
use is by combining the 200 exponential moving average with any indicator and
automatically increase its win rate let me give you an example if you're just
trading only using the parabolic sr it will give you a win rate of only 38
percent but if you combine it with a 200 ema it will increase the win rate to
46 it also works with other indicators as well for example the super trend if
you're trading only using the super trend indicator it will give a win rate of
only 39 but if you combine it with a 200 ema it can boost that win rate to 48
so adding the 200 ema with any indicator can automatically increase its win
rate and the way you combine the 200 ema with other indicators is very simple
if the price is above the 200 ema you only take buy positions and if the price
is below the 200 ema you only take cell positions so let me give an example if
an indicator, in this case, the super trend gave a buy signal while the price is
above the 200 ema you take a buy position but if the super trend gave a buy
signal but the price is below the 200 ema then you ignore this buy signal this
also works for cell signals as well if the super trend gave a sell signal and
the price is below the 200 ema you take a sell position but if the super trend
gave a sell signal but the price is above the 200 ma then you ignore this cell
signal so that's how you combine any indicator with the 200 ema so I just gave
you the best moving average strategy that you can implement in your trading
system right