Fast Moving Averages กลยุทธ์เทรดดิ้งครอสโอเวอร์

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The Perfect Moving Averages for Day Trading

Day traders need continuous feedback on short-term price action to make lightning-fast buy and sell decisions. Intraday bars wrapped in multiple moving averages serve this purpose, allowing quick analysis that highlights current risks as well as the most advantageous entries and exits. These averages work as macro filters as well, telling the observant trader the best times to stand aside and wait for more favorable conditions.

Choosing the right moving averages adds reliability to all technically based day trading strategies, while poor or misaligned settings undermine otherwise profitable approaches. In most cases, identical settings will work in all short-term time frames, allowing the trader to make needed adjustments through the chart’s length alone.

Given this uniformity, an identical set of moving averages will work for scalping techniques as well as for buying in the morning and selling in the afternoon. The trader reacts to different holding periods using the charting length alone, with scalpers focusing on 1-minute charts, while traditional day traders examine 5-minute and 15-minute charts. This process even extends into overnight holds, allowing swing traders to use those averages on a 60-minute chart.

5-8-13 Moving Averages

The combination of 5-, 8- and 13-bar simple moving averages (SMAs) offers a perfect fit for day trading strategies. These are Fibonacci-tuned settings that have withstood the test of time, but interpretive skills are required to use the settings appropriately. It’s a visual process, examining relative relationships between moving averages and price, as well as MA slopes that reflect subtle shifts in short-term momentum.

Increases in observed momentum offer buying opportunities for day traders, while decreases signal timely exits. Decreases that trigger bearish moving average rollovers in multiple time frames offer short sale opportunities, with profitable sales covered when moving averages start to turn higher. The process also identifies sideways markets, telling the day trader to stand aside when intraday trending is weak and opportunities are limited.

Examples Using Moving Averages

  • Using 5-8-13 in a Long Trade

Apple Inc. (AAPL) builds a basing pattern above $105 (A) on the 5-minute chart and breaks out in a short-term rally over the lunch hour (B). 5-, 8- and 13-bar SMAs point to higher ground while the distance between moving averages increases, signaling rising rally momentum. Price moves into bullish alignment on top of the moving averages, ahead of a 1.40-point swing that offers good day trading profits.

The rally stalls after 12 p.m., dropping price back to the 8-bar SMA (C), while the 5-bar SMA pulls back and finds support at the same level (D), ahead of a final rally thrust. Aggressive day traders can take profits when price cuts through the 5-bar SMA or wait for moving averages to flatten out and roll over (E), which they did in the mid-afternoon session. Both price levels offer beneficial exits.

  • Using 5-8-13 in a Short Sale

Apple stock consolidates near $109 at the end of a session (A) and ticks lower the next morning (B). 5-, 8- and 13-bar SMAs point to lower ground while the distance between moving averages increases, signaling rising sell-off momentum. Price moves into bearish alignment on the bottom of the moving averages, ahead of a 3-point swing that offers good short sale profits.

The sell-off stalls mid-morning, lifting price into the 13-bar SMA (C) while the 5-bar SMA bounces until it meets resistance at the same level (D), ahead of a final sell-off thrust. Aggressive day traders can take short sale profits while price lifts above the 5-bar SMA or wait for moving averages to flatten out and turn higher (E), which they did in the mid-afternoon. Both price levels offer beneficial short sale exits.

Signals to Stand Aside

Interrelationships between price and moving averages also signal periods of adverse opportunity-cost when speculative capital should be preserved. Trend-less markets and periods of high volatility will force 5-, 8- and 13-bar SMAs into large-scale whipsaws, with horizontal orientation and frequent crossovers telling observant traders to sit on their hands.

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Trading ranges expand in volatile markets and contract in trend-less markets. In both cases, moving averages will show similar characteristics that advise caution with day trading positions. These defensive attributes should be committed to memory and utilized as an overriding filter for short-term strategies because they have an outsized impact on the profit and loss statement.

Avoiding Whipsaws

Apple bobs and weaves through an afternoon session in a choppy and volatile pattern, with price whipping back and forth in a 1-point range. 5-, 8- and 13-bar SMAs shows similar whipsaws, with multiple crossovers but little alignment between moving averages. These high noise levels warn the observant day trader to pull up stakes and move on to another security.

The Bottom Line

5-, 8- and 13-bar simple moving averages offer perfect inputs for day traders seeking an edge in trading the market from both the long and short sides. The moving averages also work well as filters, telling fast-fingered market players when risk is too high for intraday entries.

Full Review of Fast Moving Averages Crossover Strategy

It amazes me sometimes how traders are drawn to the words “Holy Grail” whenever they are associated with a trading strategy or system. As we all know, Forex and Binary options go hand in hand and for that reason I constantly check the most important Forex trading forums for new strategies, with a lot of hype behind them (just for reviewing purposes) and most of them have some things in common: a LOT of indicators on the chart and the two words, “Holy” and “Grail” used throughout the explanation. Of course, there is the other category of “systems”, the ones that begin with “You want to make a gazillion dollars in a day…blah, blah?”, but those suck big time…even more than the “Holy Grail” systems. Being sick of all the systems mentioned above, I decided to bring you one of the most simple and, in my opinion, a potentially profitable system: a system that uses a fast moving average crossover. You can find it here, free and with detailed explanation: http://forex-strategies-revealed.com/trading-strategy-ema. It uses just three Exponential Moving Averages (EMA), with periods of 10, 25 and 50 and the signal to trade is given when the 10 period EMA (Exponential Moving Average) goes through both the 25 period EMA and the 50 period EMA. If the 10 period EMA crosses upward both the other two EMAs, we choose Call and if it crosses them down, we choose Put. Let’s take a closer look at what can go wrong with this strategy.

How to Use the Fast Moving Averages Crossover System?

Ok, it’s time to have a step by step explanation of how to use this strategy. As we all know, almost none of the Binary Options brokers offer a charting package and absolutely no Technical Analysis can be conducted without a charting package so step one is getting our hands on one of those. It is pretty simple, but for this we will have to adventure into the Forex jungle. Don’t worry, we will still keep it simple and we’ll have nothing to do with trading Forex. First thing we need to do is choose a Forex broker that offers MetaTrader 4 and open a DEMO/PRACTICE account like CommuniTraders. It’s free of charge and it’s one of the most commonly used charting software. The broker choice is not as important as we won’t be investing any money in Forex, we’ll just use the charts. Once you have downloaded MetaTrader 4 (MT4), open a currency pair chart (some brokers offer commodities, precious metals, etc, but we will stick to currencies for this explanation) and then plot on that chart the three EMAs needed for the strategy. Don’t worry, a picture will come soon, but first I think some more detail about Moving Averages is needed.

The main purpose of the Moving Average is to smooth out price action and to offer us a visual aid in identifying price direction. They also serve as Dynamic Support and Resistance (I say Dynamic because they move and change according to price movement). Moving Averages are a lagging indicator, calculated and plotted on the chart by averaging the value of the last “X” periods. For example, if I use a 20 period Moving Average, it will be drawn on the chart using the average value of the closing price of the last 20 candles. No, no, don’t throw stones at me for that last sentence, that’s really how a simple Moving Average is calculated and it might seem complicated. And now I have two more things to tell you; one is bad and the other is really good. I’m going to start with the bad one: there are different types of Moving Averages… a lot of types. Let me give you some examples: Exponential Moving Averages (EMA), Smoothed Moving Averages (SMA), Linear Weighted Moving Average (LWMA) and also some exotics like Triangular Moving Average, Hull Moving Average or Adaptive Moving Average. Hoping I didn’t discourage you, I am going to give you the good news: you don’t have to do any calculation because the charting software will do it for you. All you need to do is select the appropriate Moving Average (in our case, Exponential Moving Average) by clicking on Insert (upper left side of MT4) – Indicators – Trend – Moving Average. You will be given a choice of types of Moving averages and you should select Exponential, with a period of 10 and then repeat the procedure once for the 25 EMA and once for the 50 EMA. For this strategy we use EMA (Exponential Moving Average) because its formula places more weight on the last candles in the calculation, thus making it more responsive to price action. Here are two pictures of what you should see on your screens:

Ok, now that everything is in place, we just have to wait for the conditions of the system to be met and then select Call or Put accordingly. Remember, the 10 EMA must cross both the other two down for a Put and vice versa for a Call. In our example above, the red 10 period EMA crosses down the other two so we should select a Put.

Still don’t get it? Here’s the Video:

Why the Fast Moving Averages Crossover System sucks?

The first thing I want us to focus on is that this is not a trend following system in its most basic form. The entry is triggered by a change of the current direction of price, thus a counter trend move (for the 10 EMA to cross both the other two EMAs, price must definitely change direction). However, once the EMAs are aligned the way we need them and we are in a trade, we are trading in the direction of the newly formed trend until they cross again. Given that the move that generated the EMA crossover can be just a retracement of the prevailing trend, this strategy can be risky sometimes. On the other hand, if it is not a retracement, due to the lagging nature of the Moving Averages, we can open the trade late sometimes and miss out on a big part of the action. However, the ranging market, with low volatility is the time when this system really sucks, giving us tons of late and/or false signals.

Why the Fast Moving Averages Crossover System doesn’t suck?

I can strongly state that it is not a scam. Nobody looks for any financial gains if we use the system, it is posted on a free website and the indicators used are common to any trading platform. Of course, using just three EMAs makes it very easy to trade and you don’t need to be a rocket scientist to operate it so that’s a plus too. However, one of the things I like most is the fact that it can give big profits, while the losses are kept relatively low. So, if price starts trending strongly after we enter our first trade, we can open another one as long as the three EMAs are properly aligned; if immediately after we entered a trade, price moves against us and the 10 EMA crosses back the other two EMAs, we can use the “Close Early” function of our Binary platform (if the broker we are trading with provides such function or a similar one) and we will not suffer the loss of the full amount at risk. By doing this we can increase our profits and minimize loss and we can, to some extent, neutralize the late and/or false signals given by the system in ranging, slow markets.

The conclusion

This might not be the “Holy Grail” and it will give us losses for sure, but we will never find the elusive 100% accuracy system and maybe if we stop searching for it and settle for a relatively accurate system and use good money management and discipline, we’ll be making money long before the Holy Grail seekers even start to. In the “Fast Moving Averages Crossover” system we have a simple to use, clear system that is by far not perfect but it can definitely bring us profits if it is used at the right time and with the right state of mind.

How To Use Moving Averages – Moving Average Trading 101

How To Use Moving Averages – Moving Average Trading 101

Moving averages are without a doubt the most popular trading tools. Moving averages are great if you know how to use them but most traders, however, make some fatal mistakes when it comes to trading with moving averages. In this article, I show you what you need to know when it comes to choosing the type and the length of the perfect moving average and the 3В ways how to use moving averages when making trading decisions.

В

Step 1: What is the best moving average? EMA or SMA?

At the beginning, all traders ask the same questions, whether they should use the EMA (exponential moving average) or the SMA (simple/smoothed moving average). The differences between the two are usually subtle, but the choice of the moving average can make a big impact on your trading. Here is what you need to know:

#1 The differences between EMA and SMA

There is really only one difference when it comes to EMA vs. SMA and it’s speed. The EMA moves much faster and it changes its direction earlier than the SMA. The EMA gives more weight to the most recent price action which means that when price changes direction, the EMA recognizes this sooner, while the SMA takes longer to turn when price turns.

#2 Pros and cons – EMA vs SMA

There is no better or worse when it comes to EMA vs. SMA. The pros of the EMA are also its cons – let me explain what this means:

The EMA reacts faster when the price is changing direction, but this also means that the EMA is also more vulnerable when it comes to giving wrong signals too early. For example, when price retraces lower during a rally, the EMA will start turning down immediately and it can signal a change in the direction way too early. The SMA moves much slower and it can keep you in trades longer when there are short-lived price movements and erratic behavior. But, of course,В this also means that the SMA gets you in trades later than the EMA.

#3 Resume

In the end, it comes down to what you feel comfortable with and what your trading style is (see next points). The EMA gives you more and earlier signals, but it also gives you more false and premature signals. The SMA provides less and later signals, but also less wrong signals during volatile times.

In my trading, I use an SMA because it allows me to stay in trades longer as a swing trader.

Step 2: What is the best period setting?

After choosing the type of your moving average, traders ask themselves which period setting is the right one that gives them the best signals?!

There are two parts to this answer: first, you have to choose whether you are a swing or a day trader. And secondly, you have to be clear about the purpose and why you are using moving averages in the first place. Let’s go about this now:

#2 The self-fulfilling prophecy

More than anything, moving averages “work” because they are a self-fulfilling prophecy, which means that price action respects moving averages because so many traders use them in their own trading. This raises a very important point when trading with indicators:

You have to stick to the most commonly used moving averages to get the best results. Moving averages work when a lot of traders use and act on their signals. Thus, go with the crowd and only use the popular moving averages.

#3 The best moving average periods for day-trading

When you are a short-term day trader, you need a moving average that is fast and reacts to price changes immediately. That’s why it’s usually best for day-traders to stick with EMAs in the first place.

When it comes to the period and the length, there are usually 3 specific moving averages you should think about using:

  • 9 or 10 period: Very popular and extremely fast moving. Often used as a directional filter (more later)
  • 21 period: Medium-term and the most accurate moving average. Good when it comes to riding trends
  • 50 period: Long-term moving average and best suited for identifying the longer term direction

#4 The best periods for swing-trading

Swing traders have a very different approach and they typically trade on the higher time frames (4H, Daily +) and also hold trades for longer periods of time. Thus, swing-traders should first choose a SMA and also use higher period moving averages to avoid noise and premature signals. Here are 4 moving averages that are particularly important for swing traders:

  • 20 / 21 period: The 21 moving average is my preferred choice when it comes to short-term swing trading. During trends, price respects it so well and it also signals trend shifts.
  • 50 period: The 50 moving average is the standard swing-trading moving average and very popular. Most traders use it to ride trends because it’s the ideal compromise between too short and too long term.
  • 100 period: There is something about round numbers that attract traders and that definitely holds true when it comes to the 100 moving average. It works very well for support and resistance – especially on the daily and/or weekly time frame
  • 200 / 250 period: The same holds true for the 200 moving average. The 250 period moving average is popular on the daily chart since it describes one year of price action (one year has roughly 250 trading days)

Step3: How to use moving averages – 3 usage examples

Now that you know about the differences between the moving averages and how to choose the right period setting, we can take a look at the 3 ways moving averages can be used to help you find trades, ride trends and exit trades in a reliable way.

#1 Trend direction and filter

Market Wizard Marty Schwartz was one of the most successful traders ever and he was a big advocate of moving averages to identify the direction of the trend. Here is what he said about them:

“The 10 day exponential moving average (EMA) is my favorite indicator to determine the major trend. I call this “red light, green light” because it is imperative in trading to remain on the correct side of a moving average to give yourself the best probability of success. When you are trading above the 10 day, you have the green light, the market is in positive mode and you should be thinking buy. Conversely, trading below the average is a red light. The market is in a negative mode and you should be thinking sell.” – Marty Schwartz

Marty Schwartz uses a fast EMA to stay on the right side of the market and to filter out trades in the wrong direction. Just this one tip can already make a huge difference in your trading when you only start trading with the trend in the right direction.

The Golden Cross and the Death Cross

But even as swing traders, you can use moving averages as directional filters. The Golden and Death Cross is a signal that happens when the 200 and 50-period moving average cross and they are mainly used on the daily charts.

In the chart below, I marked the Golden and Death cross entries. Basically, you would enter short when the 50 crosses the 200 and enter long when the 50 crosses above the 200 periods moving average. Although the screenshot only shows a limited amount of time, you can see that the moving average cross-overs can help your analysis and pick the right market direction.

#2 Support and resistance and stop placement

The second thing moving averages can help you with is support and resistance trading and also stop placement. Because of the self-fulfilling prophecy we talked about earlier, you can often see that the popular moving averages work perfectly as support and resistance levels.

Word of caution: Trend vs ranges

Moving averages don’t work in ranging markets. When price ranges back and forth between support and resistance, the moving average is usually somewhere in the middle of that range and price does not respect it that much.

The screenshot below shows a price chart with a 50 and 21 period moving average. You can see that during the range, moving averages completely lose their validity, but as soon as the price starts trending and swinging, they perfectly act as support and resistance again.

#3 Bollinger Bands and the end of a trend

The Bollinger Bands are a technical indicator based on moving averages. In the middle of the Bollinger Bands, you find the 20 periods moving average and the outer Bands measure price volatility.

During ranges, the price fluctuates around the moving average, but the outer Bands are still very important. When price touches the outer Bands during a range, it can often foreshadow the reversal in the opposite direction when it’s followed by a rejection. So, even though moving averages lose their validity during ranges, the Bollinger Bands are a great tool that still allows you to analyze price effectively.

During trends, Bollinger Bands can help you stay in trades. During a strong trend, the price usually pulls away from its moving average, but it moves close to the Outer Band. When price then breaks the moving average again, it can signal a change in direction. Furthermore, whenever you see a violation of the outer Band during a trend, it often foreshadows a retracement – however, it does NOT mean a reversal until the moving average has been broken.

You can see that moving averages are a multi-faceted tool that can be used in a variety of different ways. Once a trader understands the implications of EMA vs SMA, the importance of the self-fulfilling prophecy and how to pick the right period setting, moving averages become an important tool in a trader’s toolbox.

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