Our last post centered on the iedea of using Moving Averages to determine the trend of a currency pair. If you'll recall, I said then to use the 200 simple MA on a daily chart. Then simply look at the direction of the line. If the MA is pointing up, the trend is up, and that is the direction you want to trade. If the MA is pointing down, then the trend is down and that is the way you want to trade. If it is moving sideways, STAY AWAY!
We also covered the price action in relation to the MA. If the price action is above the MA and the MA is pointing upward, you'll want to wait until the price action comes to to the MA and then put on a long trade.
If the price action is below the MA and the MA is pointing downward, then wait until the price comes back up to the MA, and initiate a trade to the short side.
If price is above a downsloping MA, or below an upsloping MA, this is an excellent place to begin looking for the trend to continue. But there is also another moving average that if you overlay it on the chart with the 200 day will give you some really trades.
So put a 50 day MA on the chart, and watch how often the price follows it during a bull or bear run. So instead of waiting for a pullback to the 200 day MA, just wait for pull back to the 50 day MA, then enter in the direction of the prevailing trend. Set your stop 20 pips or so away from the most recent swing high or low, and see how you do!
Happy Trading!
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