Forex Moving Average Crossover - The True Golden Cross | by Forex-Trading-Relief.net | sept 23, 2012
"A bad trade isn’t a losing trade, but one which didn’t meet your entry criteria and you took anyway."
Forex trading with moving averages crossover is one of the most simple trading strategies, but not the most profitable, unless you know what you are doing...
What's A Moving Average ?
A “Moving Average” is an indicator which removes the “noise” from a chart by smoothing currencies’ price. It makes it easier to see a pattern forming over time and helps predict future market. Moving averages were a very powerful trading strategy in the 80’s.
At that time with a simple 10 EMA (Exponential Moving Average) and 21 EMA cross, we could make good money (by keeping our trades for several days or weeks after the cross). But today’s markets are so complex that other tools should be added to the averages cross, otherwise it would be a losing approach, a heavy psychological pressure, very difficult to handle.
What’s A Moving Average Golden Cross ?
The golden cross is a moving average forecasting method used by traders to spot trend direction. When the short term moving average (be it an exponential moving average or a simple one) is below the long term one and crosses it to the upside (and vice-versa), this signals a change in trend direction. Mostly traders using moving averages forecasting techniques do the following:
- They use a triple moving average strategy (like 10, 21, 50 EMA)
- When a trend is in place and the 10 Ema crosses the 21 EMA, they consider it being the beginning of a retracement.
- But when both 10 and 21 EMA cross the 50 EMA, it’s a golden cross - that is a change in trend direction, and prepare to reverse their position. Some traders are more comfortable with Simple Moving Averages (SMA). But the principle is the same.
If we solely want to rely on these crosses to initiate our trades we would be taking endless trades in a very short time frame like a month. Because the intraday traders trading many currency pairs with this principle would constantly have many so-called “trading opportunities”.
The provided NZD/USd 15 min chart gives us a moving average forecasting example for the month of September 2012. The moving averages crossover gave 5 signals during this month, for only one currency pair !!!
This is literally 20 signals in a single month if you trade 4 pairs, and this is also without counting the false crossover signals that disappear 1 hr after they occur.
Profitable moving averages strategies in forex are moving averages crossovers backed and supported by higher time frames patterns.
Let’s say, you use the 4hr time frame as your trading interval, a true golden cross on the 4hr time frame is a moving average crossover that occur after a reversal candlestick pattern is formed on the weekly or daily time frame.
A true moving average golden cross is also the reversal crossover taking place when the market reverses after hitting a weekly support/resistance level…
Moving Averages Forecasting Example 1 - From weekly reversal on November 27 2011
Moving Averages Forecasting Example 2 - From weekly reversal on March 18 2012
It’s clear that forex moving average crossover strategy works but in specific market conditions. Now the key point is to work on sharping your charts reading skills. Learn to understand and spot true market reversal mostly from weekly time frames.
The daily chart can help too. The Gartley and Butterfly pattern completed on higher time frames are a must. The pin bar, 2 days reversal and inside bar candlesticks must absolutely be added to your trading arsenal if you are serious about forex trading.
The final thing we want to tell you is not to believe anything we say. Check it out for yourself. It would be a mistake for you to accept anything we say without a complete personal investigation, testing it for yourself and either proving or disproving these principles and techniques…
Forex moving average crossover is a great way to trade for beginners as well as experienced traders.