Hey traders,
In this post, we will discuss two efficient ways to apply the moving average(s) indicator in your trading.
Please, note that the settings for a moving average depend on many factors and can not be universal. Time frame, your style of trading and many other factors should be taken into consideration when you define the settings.
1️⃣The first very efficient way to apply moving average is to consider that to be a strong support/resistance. Such a method is appropriate for trend-following traders.
A very important condition to note applying MA as the structure is that the market should be trending: it should trade in a bullish or bearish trend, not in sideways.
📍In a bullish trend, a moving average will provide you a relatively safe point for buying the market after a pullback. Quite often, after a test of MA, the price tends to bounce all the way up to a current high and even go higher to the next highs.
Here is how a simple moving average is applied as a support in a bullish trend on Gold. The price reacted multiple times to that and strong bullish movements initiated from that.
📍In a bearish trend, a moving average will serve as a strong resistance and quite will often indicate a completion point of a retracement leg after a strong bearish impulse.
2️⃣The second way to apply moving average is to apply a combination of 2 MAs with different settings (one with a bigger and one with a smaller length). Such a method is usually applied by counter-trend traders.
And again, a very important condition to note, is that if you want to apply this method efficiently, remember that the market must be trending, it should be bullish or bearish.
Your task will be to track an intersection of two MAs.
📍In a bullish trend, a crossing of two moving averages with a high probability will indicate a trend violation and initiation of a new bearish trend.
Such a signal usually serves as a trigger to open a short position.
📍In a bearish trend, a crossing of two moving averages will signify a violation of a bearish trend and the start of a new bullish trend.
The intersection by itself will be a signal to open a long position.
Take a look how 2 moving averages with different input length perfectly predicted a violation of a bullish trend on Gold and initiation of a bullish wave after a correction.
Your task as a trader is to find the most accurate inputs for MAs. With backtesting and experience, you will find the settings applicable to your trading style.
What indicator do you want to learn in the next post?
