Moving Averages in a trading strategy

Hey everyone, I’m new to this site and absolutely love it! Anyway i’ve read through most of the school of pipsology and am trying to develop my own strategy. I want to trade hourly charts and i know i want to incorporate moving averages. Just wondering what periods you all use (if any) in your strategies. Right now i’m using a 50, 25, and 10 but i dunno if i should speed it up a little bit or not.


I’d say drop moving averages. Almost any strategy that relies on moving averages ends up in the red.

MA crosses usually lag and by the time the cross happens, you’ve missed most of the move.

The only MA I suggest people use is the 200sma. Anything above it, means the trend is up, and anything below it means the trend is down. But remember, these are just guidelines and don’t necessarily stay true the entire time.

Focus on RSI, Stochastics along with s/r. This is what I primarily use and it works out for me.

Thanks for the advice! I have yet to try stochastics and RSI. I know there are various ways in which to interpret these so how do you use them in your strategy?

I have come to like parabolic SAR because its easy and clear to use and i would like to get into more candlestick patterns.

You don’t necessarily have to drop the moving averages. Just don’t rely on them to tell you where price is going. By the time it shows you the movement has already taken place.

Learn to watch price action first. Then use indicators to confirm movements.

First you need to identify a trend or [B]NOT[/B] a trend.

The Average Directional Movement Index (ADX) line helps determine whether a market is in a trending or a trading phase. It measures the degree of trend or direction in the market.

A rising ADX line suggests the presence of a strong trend. A falling ADX line suggests the presence of a trading market and the absence of a trend.

[B]A rising ADX line favors moving averages; a falling ADX favors oscillators.[/B]

By plotting the direction of the ADX line, the trader is able to determine which trading style and which set of indicators are most suitable for the current market environment.

Oscillators help identify overbought and oversold markets. [B]While moving averages offer confirmation of a market trend change[/B], oscillators often help warn us in advance that a market has rallied or fallen too far and will soon turn.

In order to identify a Trend a mix of Moving Averages need to be in “proper order” eg. cleanly stacked up on top of each other starting with the 5 period EMA and finishing with the 200 period EMA for an Uptrend and the reverse for a Downtrend.

I use the following…

  • 5 period EMA
  • 8 period SMA
  • 13 period EMA
  • 21 period EMA
  • 55 period EMA
  • 100 period EMA
  • 200 period EMA

The 5/8 is for momentum of price.

The 21/55 is for speed of the market.
eg. How many people are actively trading.

The 100/200 is for the strength of the trend
eg. What angle on my charts are shown.

The 13 is for pullbacks.

Hope that helps.

I would say don’t use MAs at all. Use trendlines and support&reistance - that will tell you more about the market beforehand.
If you are going to use an MA method, you could try one that involves using the 50SMA (smoothed moving average) and the 21 and 10 EMA (exponential). An example here - I don’t know how effective it is but I look for something similar but on a different timeframe.
5Min Intraday System @ Forex Factory

Not that this is a method only for trending price movement. When the pair is ranging, it will NOT work.

The question was what Moving Averages are used.
I did answer that question.

MA’s are lagging indicators and should be used with other indicators, S&R and trendlines.

Nevertheless MA’s are another tool in the toolbox and should not be disregarded.

There is always the right tool for a specific job at hand. :slight_smile:

You can use longer trend lines effectively depending on your stomach for risk.

For example a combination of 60/120 will show a great return… however it also can require sizable stop loss or none at all which exposes the trader greatly.

You have to back test and forward test each combination to see if it will suit your style

can adx be used on any time frame ie 15 mins /1 hr?

I haven’t used ADX on time frames lower than 30 minutes.

As an example how I am using ADX in conjunction with MA’s and CCI…

I took a position in the afternoon NY time with the USD/CAD pair.

My entry rules…

BUY/SELL - Entry Rule
5 period EMA crossed 13 period EMA in direction of the main trend
BUY/SELL - Entry Rule
5 period EMA and 13 period EMA are locked and will not move
BUY/SELL - Entry Rule
After current 30 minutes signaling candle is closed
BUY/SELL - Entry Rule
[B]CCI 14 movements above +100 and below -100[/B]
BUY/SELL - Entry Rule
[B]ADX 14 is rising from below 18 and is moving above 23[/B]

ALL conditions were met @17:30 hours EDT [see chart]

I took a short position based on my SELL entry rules…

SELL - Entry Rule
CCI 14 moved below -100
SELL - Entry Rule
5 period EMA crossed down and below 13 period EMA
SELL - Entry Rule
Place initial stop on the entire position 50 pips above 13 period EMA
SELL - Entry Rule
Place limit exit order on the entire position 221 pips below opening price

Entry Price @1.1147
Price Level @present = 1.1058

My position is still open…

USD/CAD position update…

The 4 hour chart shows MAs in [B]proper order[/B]

Price hit 1.1031 @present

My position is still open…

USD/CAD position update…

ADX [B]-DI[/B] shows a reading above 37.

The MA’s are about to establish [B]proper order[/B] on the 1 day chart as well.

Price broke Pivot Point S3.

Price level 1.1019 @present.

My position is still open…

I closed my USD/CAD position because two exit conditions were met in my trading system…

SELL - Exit Rule
CCI 14 moving back above -100
SELL - Exit Rule
ADX 14 -DI is peaking and starting to move down

CCI showed -88
ADX [B]-DI[/B] moved down from it’s peak reading above 37.

I closed my position @1.1024.

That means…

Entry Price @1.1147
Exit Price @1.1024

Result … +123 pips per Lot

MAs, ADX and CCI can be very profitable tools.

if your results are more like this, then i think the holy grail is here!. But, i have some questions for you.

  1. Which time frame do you trade on?
  2. Is this a live or demo trading?
  3. Have you applied those tools on another pair ? If yes, how good is your result?
    Keep it up.

What did the indicators say at 1.1600 because that would have been an idela place to sell? :slight_smile:

I don’t know what my indicators said @1.1600. :wink:
I follow the entry rules of my trading system with 100% discipline. And I have posted my entry rules in this thread.

btw…there is no ideal place to for an entry :slight_smile:

take a look at the 30 mins chart, i think at 1.1147 the adx,cci and MA have given the green light.

  1. Which time frame do you trade on?
    USDCAD & Crude Oil…30 minutes
    the other listed pairs…1h

[I]2. Is this a live or demo trading?[/I]
live…on a full account eg. no mini ect.

  1. Have you applied those tools on another pair ?

Best results are archieved with USDCHF in a 1 hour time frame.

If yes, how good is your result?
In asian trading this morning it yielded +22 pips in the USDCAD pair. But the ADX reading was just above 23 when I entered the position. It was just enough to comply with my entry rules.

The results vary depending on market conditions. I have had +600 pips but I have also had -46 pips. It really depends what time-of-the-day the signals are generated.

Keep it up.
Thx…I am trying :slight_smile:

Alright, thanks for the explanation. Whishing you a good piping.

i’ve used this strategy on gbp/usd and usd/jpy on demo and it worked. but what baffles me is that in live trading, i got into the market according to the rules but for the market to just reverse against me. do you apply any indicator that indicates if a trend is getting weaker or stronger? please i need your suggestion.