15 basic rules for trading forex using moving averages:
1st rule. Short-term market trend is marked with 20-day Moving Average, medium-term trend – with 50-day moving average, long-term trend – with 200-day Moving Average.
2nd rule. Natural boundaries for the market correction are represented by these 3 main moving averages. It should be noted 2 arguments in favor of this fact:
– averages define important levels at which, after a strong movement, losses should weaken, as well as profit taking.
– averages are of great importance for market participants, therefore, when the price approaches them, many traders either fix profits or open positions;
3rd rule. Moving averages are ineffective in a sideways trend, since their main task is to show the direction of the trend. In financial markets, they lose efficiency, which shows little or no price movement.
4th rule. The characteristic of Movings changes when they are smoothed and also turned over. In a horizontal position, a reversal of the moving average indicates that there has been a loss of momentum. This increases the chances that the price will cross the moving average quite easily, indicating consolidation.
5th rule. Due to the direct correlation of averages with the price, their display changes with each new bar or candle.
6th rule . It is recommended to use exponential moving
averages for large time periods , and simple moving averages for small time frames .
7th rule. Short-term simple averages help you understand the actions and reactions of other players.
8th rule. In order to determine the strength of the short-term trend, it is necessary to place on the intraday charts in moving averages with periods of 5.8 and 13.
9th rule. The long-term strategy of professional traders and investors is indicated by the location of the price of the traded instrument in relation to the 200-day moving average. Above you should buy and below you should sell.
10th rule. A significant change in the behavior of “bulls” as well as “bears” is indicated by the 50 – day moving average, which crosses the 200 – day moving average in any direction. Crossing from bottom to top – “Golden Cross”, from top to bottom – “Death Cross”.
11th rule. It is much more difficult for the price to break from the bottom up through a declining moving average than through an upward moving average.
12th rule. Movings set at different time intervals will show the rate of trend change (using the relationship to each other).
13th rule. The pressure from buyers or sellers at a certain time will indicate the slope of the moving average.
14th rule. Long-term movings are not used to determine forecasts for a short period of time.
15th rule . Support as well as resistance levels are formed when averages
diverge and converge.