How to actually trade Moving Averages in 2021 ?

Article Level: Intermediate.

I expect you to know what the MA is and how it counts. However, I will give you a short reminder.
I have made so many wrong trades, and most of them happened in systems where I didn’t implement MA’s. So, in my opinion, no matter what kind of trader you are and what is your system, it’s important to include MA’s in your approach.

Disclaimer:

Information provided is not the advice of any kind, proof of something, 100% correct information or a scientific discovery! This is just my opinion that I got from my past years of experience as a trader, so please don’t judge heavily.

How MA’s look like? (recall):

I‘m not going to talk about what they are, as I assume that you already know it.
On the picture here, I’m using 4 SMA’s: periods of 20, 50, 100, 200. This is not for a trading system yet.

Popular ideas of using MA’s (recall):

1. CrossCrosses, when the Slower MA is crossed by the fast MA, open position towards the fast MA direction (can be used as a stand alone TS).
2. Direction, open positions towards the direction of the MA (used with other TS modules).
3. Position of Slow MA to Fast MA. If Fast MA is above Slow MA, go for long. If Fast MA is below Slow MA, go for short (used with other TS modules).
4. Using MA’s as Support and resistance.

…. and many more (if you would like me to write about trading strategies that I use or have used in the past, then comment, and I will do so).

Main problems of using MA’s:

1. delays: wDelays: when you are following MA’s generated signals, it’s easy to miss moves.
2. Hard to use if the market is not moving in one direction long enough.
3. Almost not possible to use for short term trading.

How to use MA’s in order to get a better price?

It’s actually possible to turn some of the problems in our favour.

In words:

• the setup consists of 3 Moving averages. I will use SMA10, SMA20 and SMA50.
• SMA50 is the main direction.
• We will look for a long position when the SMA10 is below SMA20, but both of ma’s and price are above SMA50.
• We will look for a short position when the SMA10 is above SMA 20, but both of ma’s and price are below SMA50.

here’s the setup:

When the primary trend is up, but the short term up move is finished, we are looking for a long entry.

Exercise:

Try to find entry zones in an uptrend.

Your entry zones have to look similar to the one’s below (green: long entry, red: short entry)

Moving Average “Time Filter”

On the chart below, we can see that MA’s can work as a great “time filter” if used in the right way, helping us avoid opening positions too early. Also, the main problem: delay, does not seem to appear here.

Trading Moving Averages:

Moving Averages can be used as a stand-alone trading system, or it can be a great add on to the system that you already have.

The setup of the Moving Averages length (periods) presented here is not something I use, and I actually took random numbers, and for the chart, I simply took what was open in my browser. Therefore, for each instrument and time frame, Moving Averages length (periods) will be different. So you just have to continuously test it to choose the right setup for a particular instrument.

Suppose you have decided to try Moving averages as a stand-alone system. In that case, the entry signal for a setup will be provided by the crossing of the MA10 and MA20, and the direction will depend on the “cross” position relation to the MA50.

Conclusion:

Moving average is a great tool, and what’s good about it is that it’s dynamically adapting to the market condition.

You can use it on any market, but you will have to adjust the MA length set up each time while adopting to the new instrument.

SMA’s have been used in this sample, but you can use any of your favour, as the goal of this article is to help you make less frequent losing trades, and I really hope that it helps.