Moving Averages (MAs) could be used from the simple to the complex trading system. The basic of trading using MAs is to trade in the same direction of their slope.
When enter a trade, don’t buy high above Moving Average or sell low below MA. Enter a trade when price return to MA. When traders buy or sell near MA, place a tight stop slightly below (if buy) or above (if sell) the MA.
Sometimes traders may tracks trends well but prices move so explosively. When prices never get back to the Moving Average, traders might use the dual Moving Average technique.
Suppose trader finds that a 22-day EMA identifies trends well. Draw it, but then divide its period in half and draw an 11-day EMA on the same screen in a different color. Then use the 22-day EMA to identify up and down moves, but use the shorter EMA to identify entry points when prices pull back to it.
A well-known method of trading moving averages is Cross Over strategy. This trading strategy requires two moving averages with different length.
When the shorter-period moving average crosses the longer-period from below upwards, this is called Golden Cross; it indicates a possible new up trend and signals traders to buy.
When the shorter-period moving average crosses the longer-period from above downwards, this is called Dead Cross; it indicates a possible new down trend and signals traders to sell.
The Moving Averages could also be considered as support or resistance level. MAs will serve as resistance level when prices are below MAs. MAs will serve as support level when prices are above MAs.
These Moving Average techniques will help traders to gain profits easily but do not guarantee winning in every trade. So traders should use other indicators and methods to increase their chance of successful trade.
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