Moving Average are probably the most used technical tools. In this article I will describe some of the ways of using them, and its advantages and disadvantages.
Crosses
Many novices trade Moving Average crosses, meaning: 5-Period Moving Average crosses above\below 30-Period Moving Average. This is a trend-following approach. Unfortunately, this method is not particularly profitable. It may seem that it produces profits but in longer-term, when price is in trend only 15% of the time, this system leads to destruction of funds.
Bunny Girl
The Bunny Girl system is an improvement of the simple cross system. It uses a 25 pips filter designed to filter ranges - a stop order is places 25 pips above\below price in the direction of the cross, to confirm the trend of the price. This is an improvement, however it does not provide the constant edge shared by true profitable systems, and despite it can work for the short-term, it is advised not to trade it.
Moving Average Bounce
The moving average bounce is a method of entering trades after price bounced off a moving average. The moving average should be with high slope - and not flat. This filters periods of range and confirms a strong trend in price. After a bounce is confirmed, the trader also has a solid spot of placing stop loss, which is not common among trend-following systems. This system is traded by many traders and proven very profitable - if confirmed by support and resistance and other technical tools.
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