The strategy that I wish to share with you all today is a very simple moving averages strategy. This strategy is great as it can be applied for any timeframe and any type of traders can utilise it to profit (scalp, swing or position).
Now while the rules of this strategy are simple, it’s good to know at least some if not just the basics of price action as it will help you in identifying better trades and better manage trades.
I personally use this on the 4-hour timeframe so that I’d only need to check the 29 currency pairs/instruments I trade a maximum of 6 times a day (most of the time 4-5 times as I’d be asleep for the other 1-2). But you can use it to scalp on the lower timeframe if you wish or, you can also use it on the daily timeframe even.
So let’s jump into the good stuff.
The Indicators
- The 10 EXPONENTIAL Moving Average
- The 15 EXPONENTIAL Moving Average
- The 50 SIMPLE Moving Average
The Rules
Below are rules for a BUY trade but it’s the exact opposite for a SELL:
- Price MUST be trading and have closed above all 3 MAs
- Wait for price to pull back and CLOSE below the 10 and 15 MAs
- Enter into a long trade once price CLOSE back above the 10 & 15 MAs
- SL is at the most recent swing low (conservative, safer not as good RR IF there is a deep pullback) or at the low of the signal candlestick (aggressive, riskier but better RR)
- Move SL to BE once price has reached 1:1 RR and manage the trade as to your liking from there onwards depending on price action
- Close your position(s) if the price close on the other side of the 50 SMA
How to Pyramid to Maximise on Profits
Now, this is how I personally like to trade this, you don’t have to do it but, on a big trend, it can help to capture huge profits also maximise profitability at the same time.
Every time the price pullback and close on the other side of the 10 & 15 MAs and close back in the direction of the trend, I’d enter into another trade. Same SL rules.
This way I am able to maximise on the profitability on a long and strong trend. The SL of all previous trades would then be moved to where the SL of the newest trade is.
If price closes on the other side of the 50 SMA in the opposite direction of the trend you are trading, close out all positions.
You can apply many trading techniques here such as opening smaller positions each time to be safe or don’t do it at all, it’s entirely up to you as a trader to decide what you are comfortable with doing.
What if There is No Pullback?
It’s almost impossible for there to be no pullback, however, at times during a strong trend, you may see price not reaching the other side of the MAs and then return to trigger an entry as per the trading rule.
As a trader, you can determine if a trend is strong by many different methods, but if I see price consolidate for a period of time but do not have enough momentum to reach the other side of the MAs, I’d place a stop order at the nearest high/low in the direction of the trend as there is a high chance price will break out in that direction and keep moving. This way, I will not get left behind by the market.
Another way of trading this is to draw trend line towards the MAs on the pullback and once this short term trendline is broken, you can enter into a trade in the direction of the trend.
Remarks
Again, I am not taking credits for coming up with this strategy, the MAs has been around for a long time and there are so many variations in ways of trading it, there is probably a method similar or is even exactly the same somewhere on the web.
It’s not the holy grail, it’s up to the trader to modify the strategy to work best for them if needed. How one trader to another manage their trade is also different, so profitability is also dependent on the trader him/herself. There will be losing trades as well as winning ones. But if you have enough big wins and minimal losses (which this strategy can bring you), you will come out on top.
Backtest and check it out for yourself before using it live.
Here are some chart examples with the arrows pointing where you could have entered into a trade. How to manage a trade and setting SL and TP is subjective and dependent on the trader so I have not included it in here at this point in time:
If you have any questions, feel free to ask, as always, happy to help where I can.
