The use of such a tool in technical analysis, moving average method, has proved its efficiency and simplicity, thanks to many years of observations of experienced traders.
Smoothed values of prices allows not only to see current market trend, but also to determine the point of its reversal. The moving average almost always gives a good signal to derive stable profits.
How to detect patterns on a real chart
Figures of the Dead (death) and Golden cross Forex are opposite signals: bearish and bullish, respectively. To see them in any chart is extremely simple. For this you need to do the following:
- Build two moving averages of different periods and colours, one with a setting of 50, the other with a setting of 200. If we study the short-term trend (when scalping), selects one exponential moving average (EMA) with period 20, and the other with a period 50.
- The market area is to be chosen with a strongly pronounced trend.
- If the EMA with smaller period crosses the EMA with a large period, from the top down, then formed a Dead cross signal, to the emergence of bearish (downward) trend.
- If the moving averages are crossed in reverse order, hence, there is a Golden cross is a signal to the emergence of a bullish (rising) trend.
Apply these two moving averages well describes the mood of the players in a trending market. As soon as the intersection of the lines, most of them (with the period 200) to generate levels of support and resistance Forex depending on current trends. For a long period of time, the asset can move between the slide and giving opportunities for scalping.
Rules of application of the strategy
This method of Scorsese average is very simple, however, requires strict adherence to several rules:
- Setting a Stop Loss is the level closest to the crossing of moving averages of minimum, or maximum.
- Market exit (Take Profit) occurs when the received feedback signal – i.e. the moving average in the opposite direction.
- The system is used most often in the Forex market is multi-currency, however, should take into account the periods of the greatest volatility (the European session) and seek to enter the market in this period (from 9 to 16 hours Moscow time).
- This moving average method is applied at different intervals and is often used for scalping (minimum M5). In case of conflicting patterns on different frames triggered a General rule: the older the interval, the stronger the signal.
- Dead and the Gold cross are only applied in a trending market. If over a long period of time (the whole day) is observed Platova the situation or obscure the movement of the asset, the likelihood of success is greatly reduced.
- Patterns are analyzed only during the “quiet” trade when no major economic news in the coming hours. Otherwise a strong movement of the asset can give a lot of false signals to enter.
Important! Like any other strategy this trading system needs a preliminary testing on a demo account. Only after obtaining a stable positive results, you can move to real trading, observing the rules of risk management.
That increases the chances of success
To more successfully use the moving average method the trader should take care of receiving signals from other technical analysis methods:
- Since the strategy is reversal, the signals of overbought or oversold market, which gives the Stochastic, will serve as an additional basis for a more confident entrance.
- If after crossing the lines the large asset forms candles with large bodies, extending into a u – turn is a good signal confirming the change of trend.
- Finally, the reversal of the asset from the strong levels of support or resistance, gives a much greater probability of profit.
When successfully configured, the strategy can be made and additional inputs using the 200 EMA as support or resistance. The use of the described system will allow you to determine price movement beginners. And for more experienced traders this strategy can be an additional tool of analysis.