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In this article I will describe how to incorporate Moving Averages in your trading.
Moving Average are common technical indicators, used in many trading systems and by many traders. In this article I will shatter some misconseptions about this indicator and teach you how to use it profitably.
Don't Trade Moving Average Crosses!
I know some people won't like what I am going to say, well, sorry for breaking your dreams but the fact is that Moving Average crosses simply don't work. It doesn't matter if it works for you now, even if you are using it for 6 months. Eventually, it will stop working and it will only be a matter of accepting your own defeat. Save your trading account and don't trade crosses.
Moving Average as Support and Resistance
When price is trending strongly, and Moving Average starts to point to a direction strongly, it becomes an area of Support and Resistance.
The bounce of price from a Moving Average can be a profitable signal for trading. However, you should confirm this signal with other form of signal - preferably a Support and Resistance level or a trend line.
Moving Average to seperate Trend and Range
Moving Averages can be used to determine Trend phases and Range phases. A strongly trending Moving Average signals that trend is strong and a flat Moving Average signals ranging period.
This knowledge can help you choose which trading signals to follow and which to skip: Breakout signals are weaker at ranging periods and, whereas ranging signals can be highly reduced in performance if it is a period of strong trend. Pay attention to trend and range to not fall into common market pitfalls.
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