This is a basic risk management strategy called the risk-to-reward ratio. For instance, if you are risking 10 pips, the target should be placed 20 pips away from the entry price. To mitigate risk, consider placing a target that is at least two times the risk. Preferably, exit the trade when the price approaches the lower band for a sell trade or the upper band for a buy trade. If it is for a buying decision, the stop-loss should be placed one pip below the recently formed swing low. Alternatively, if the market is in a strong downtrend, traders should consider selling once the price reaches the middle band and then begins to drop away from it.įor a selling scenario, the stop-loss should be placed one pip above the recently formed swing high. Once the price is in an uptrend, traders should consider buying once the price starts to approach the middle band (MA) and begins to rally off of it. To use this strategy, the best time to trade is when there is an overall strong directional bias to the price. Finally, it is advisable to use a profit target of 20 pips or on the alternative, exit the trade when the 5-period drops below the 20-period for a buy trade or if the 5-period is above the 20-period for a sell trade.An optional step to consider is to move the stop-loss to break even once the trade becomes 10 pips profitable.The initial stop-loss order should be placed below the 20-period EMA (for a buy trade) or about 10 pips from the entry price.Also, the price along with the 5-period and 20-period EMAs must be below the 50-period EMA. For a selling decision, the 5-period EMA must cross from a point above to a point below the 20-period EMA.Also, the price along with the 5-period and 20-period EMAs must be above the 50-period EMA. To make a buying decision, the 5-period EMA must cross from a point below to a point above the 20-period EMA.The three lines should include a 5-period EMA, a 20-period EMA, and a 50-period EMA. Start by plotting three EMAs on a 15-minute chart.This strategy is designed to provide quick responses to price changes which enable traders to make appropriate decisions in good time before the market turns against them. These two moving averages form the basic structure of most tested moving average strategies and this article will be focusing on them.Įxponential Moving Average Trading Strategy The two most popular moving averages are the Simple Moving Average (SMA), which is the average price over a particular set of time periods, and the Exponential Moving Average (EMA), which offers more weight to recent prices. This allows them to be used in identifying support and resistance levels. Moving averages majorly function as trend indicators because they are lagging indicators in which they only provide data on previous price behaviors rather than predicting future price movements. Moving averages represent excellent methods of making the most of trading opportunities in the forex market. For MA traders, here are some tested moving average strategies to try. Trading a proven strategy would be much more reliable if you want to get promising results.
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