I’m so excited this morning. I want to celebrate this joy with you. Look at the moving averages below! Let’s discuss this scenario. NB: if you are the newest newbie, please read about moving averages here on Babypips.com. This may help you to participate effectively in this wonderful discussion.
, LET’S DISCUSS!
WHAT CAN YOU DO WHEN YOU JUST WAKE UP. THEN YOU SEE THE 20 SMA CROSSING OVER THE 200 SMA FROM BELOW THE PRICE, AND A FEW SPACES BELOW IS YOUR 50 SMA. YOUR TRENDLINE CONVERGES AT THE SAME POINT?
I would delete the 200MA and draw the time-frame out to 1-day candles.
I would ignore the MA cross-overs and look for when the two remaining MA’s are both sloping upwards - after which point I wold be watching daily candlesticks for an opportunity to get long.
Thanks for replying. It would help us if you briefly explained the following statements in your response:
Does it mean that the 200SMA is useless in this scenario? Please give us the reason why you suggest deleting it.
We also have heard debates about crossovers. Some traders promote going long when a faster-moving average like 20 or 50 SMA crosses over a slower-moving average like 200MA. While other traders argue that crossovers are misleading. In your situation, could you kindly clarify why we must ignore this crossover?
Thanks for reminding us to look out for a situation, where the 20 and 50 MAs are trending upwards. Some new traders may not know the significance of this one. Kindly, explain very briefly!
What purpose does the 200MA have? OK, sure, it is now below two shorter MA’s, but price was already moving up strongly while the 200MA was lost in the clouds overhead. If you would have taken a long at any point before today the 200MA is not doing anything constructive. There needs to be some relationship between the MA’s you use as filters and the length of time you plan to hold your position open.
I do not use cross-overs as entry signals as the point in time at which they occur has no direct relationship with the price at that same time. Yes, golden crosses usually occur in uptrends, so if you buy on a golden cross-over you will statistically make some money. But the profit is from buying into uptrends not from following MA golden crosses. If you look at an trend without the MA’s, there will be nothing on the chart to tell you to buy right now: a decision from price action would be an entry with better probability.
MA slopes are for trend confirmation. Its almost impossible to find an uptrend in which these two MA’s are not both sloping upwards. Likewise if an MA is sloping upwards, its also almost impossible to find a chart in which price is simultaneously below the MA. All good signs of an uptrend.
Thanks for taking your time to reply at length. Your feedback was very enlightening. As traders, we are often excited to see a golden cross without looking at its other side. But if we ignore the trend confirmations on areas of value before the appearance of a golden cross, we might not lock in more profits despite having it.
Analysing the chart again, I agree with you: the 200MA didn’t do much work. It only appeared at 09 AM of the following day (30.03.21): after 50 MA had already done a great job from 08 AM of the previous day (29.03.21). First, the 50 moving average already worked as a Support line to the price movements. Second, it allowed the price to test it 3 times to confirm a trend reversal from a downward to an upward trend. Third, it also allowed the price to create 3 areas of value as it touched the support line. Besides, I see some bullish-reversal candlestick patterns on these areas. I can’t ask enough from the 50 MA except to place my order after glancing at the RSI, Stochastic and Volume indicators.
Therefore, while 50 moving average was busy working, the damn-slow 200 moving average was leisurely galivanting above the price only to reappear the next day at 09 AM. The worst thing is that its appearance took away the credit from 50 moving average among some newbies for the job it didn’t do. In all fairness, I want to mention what I think the 200 moving average did for me. It presented itself as the golden cross. This confirmed the bullish trend reversal, and maybe it signalled the possibilities of a trend continuation.
I think we’ve all been taken in by the apparently obvious value of these signals. Most traders say they don’t work because they lag price. But that is only half the story.
Saying these indicator signals lag suggests that at some future point they will therefore become correct, as the lagging indicator catches up with more recent price action. The reality is much worse: these signals never become valid, they don’t lag, because they are actually entirely unrelated to recent price action. These are random signals.
Of course, if you take random entry signals in strong trends, you will probably make money over the long term. But you might just as well toss a coin at the Open and decide to enter with the trend today or wait until tomorrow and toss the coin again. The signal itself is irrelevant.
Oh ok! Thanks for sharing. I’m using them in combination with confluences and specific candlesticks. They have done great so far. I don’t use anything in isolation. I combine it with at least 2 other confirmations.
This could be the case but honesty I can’t stand adding more indicators to my charts lol. Initially I was doing this and would have 5 indicators but it’s just too exhausting to monitor. But you know, as with all things in life, stick with what works for you! So if that setup has been yielding you results, by all means, go with it!
Trading with indicators is okay. But they should not be too many or too few. As per my trading experience, you get the best results when you trade with two indicators at a time as I do. With RSI, I determine whether the asset is overbought or oversold and confirm it by using MACD.
