A recent inquiry from one of our subscribers got me thinking...

"Saurav, what's the one indicator you can't do without?"

Without hesitation, my response was "The Moving Average" (MA).

In my early trading days, I wasn't much of a fan of the moving average trading strategy. I had these thoughts running through my mind...

"Indicators are pointless because they lag behind the market."

"Indicators are just for beginners."

Fast forward eight years... I can confidently say that I was mistaken.

The moving average is among the most adaptable trading indicators I've encountered. It can be applied in ways you might never have considered.

So, here's what you're going to discover today:

• How to harness the power of MA to trade in line with the prevailing trend.

• How to employ MA to spot valuable opportunities on your charts.

• How to utilize MA to establish your stop-loss levels.

• How to fine-tune your entry points with the help of MA.

• How to ride massive trends across various markets using MA.

• How to identify the most promising markets for your trades.

• A potent moving average trading strategy designed to capture significant market trends.

Now, a word of caution:

This isn't your run-of-the-mill guide explaining the distinctions between simple, exponential, or weighted MAs (you can easily find that information with a quick Google search).

You're about to dive into advanced moving average trading strategies, some of which you may not have encountered before.

Are you prepared?

Let's get started.

How to employ the moving average to trade aligned with the prevailing trend.

I'm sure you'll concur with me when I mention that a downtrend typically involves lower highs and lower lows.

But... now and then, you might encounter a situation where there's a higher high within a downtrend. Does this signal the end of the trend?

Let's delve into an example:

Here's the key point to remember...

Even if you observe a lower high (and a lower low) within an uptrend, it doesn't necessarily signify the end of the trend.

It could indicate a complex pullback, often preceding the continuation of the underlying trend.

Let me illustrate this with an example:

So, you're probably thinking:

"How can I establish a more objective definition of a trend?"

One effective way is to utilize the Moving Average (MA) indicator.

Here's how you can interpret the moving average and leverage it to trade in line with the trend:

• If the price is above the 200 EMA (Exponential Moving Average) and the 200 EMA slows upward. Considering the timeframe you're examining, the market is in a long-term uptrend.

Furthermore, suppose that the price is positioned above the 20 EMA (Exponential Moving Average) and the 20 EMA is trending upward. In that case, the market is currently in a short-term uptrend based on the specific timeframe you are analyzing.

It makes perfect sense.

Moving on...

Examining the MA's incline (Moving Average) can assess a trend's strength.

The steeper the MA's slope, the more robust the trend is perceived to be. Conversely, if the MA exhibits a flatter slope, it suggests a weaker trend. Let me illustrate this for you:

Let's explore how to use the moving average to identify the value on your chart.

You've likely heard the adage "buy low and sell high." But the real question is, how do you precisely determine what's low and what's high in the market?

This is where the MA indicator comes into play.

Now, you might be wondering:

"Which MA should I opt for?"

Here's the deal...

There isn't a single "best" MA that applies universally.

Instead, you should choose an MA that aligns with your trading strategy.

If you aim to engage in long-term trend trading (within your chosen timeframe), then the 200 EMA is a suitable choice.

If you're targeting mid-term trends (within your chosen timeframe), then the 50 EMA is a solid option.

I rely on the "space" between the 20 and 50 EMA to identify the zone of value.

Let me illustrate this concept with an example:

Pro tip:

Moving Averages (MAs) perform at their best in trending markets. It's advisable to steer clear of using them in range-bound markets.

Now,

let's explore

how you can utilize the moving average to establish your stop-loss levels.

Here's another crucial concept: dynamic Support and resistance (SR).

As you've learned earlier, these are zones of value on your chart that are identified using the MA. And this can be a potent technique for establishing your stop-loss levels.

Let me elucidate:

In the context of a trending market, the price often encounters resistance at dynamic SR (which represents a value zone).

You can envision it as a "barrier" that hinders the price from crossing through.

Therefore, isn't positioning your stop loss beyond this dynamic SR logical?

Doing so would benefit your trade from the protection this " barrier provides," reducing the likelihood of your stops getting triggered prematurely.

Here are a few examples of dynamic resistance, starting with (USD/SGD):

Dynamic resistance at (USD/SGD):

Dynamic Support at (SOYBNUSD):

Dynamic support at (DE10YBEUR):

It makes sense. Let's continue.

Now, let's explore

How to utilize the moving average indicator to refine the timing of your trade entries.

Here's what I'm about to share with you, and it can significantly enhance your trading entries.

You've already grasped that the MA can serve as dynamic Support and resistance (SR) in a trending market, representing a valuable trading zone.

And, if you haven't noticed...

The market behaves somewhat like a "rubber band." When it's stretched too far away from the dynamic SR, it tends to snap back.

Now, you might be wondering:

"How does this benefit my trade entries?"

Consider this scenario:

If the market has become "overextended," there's a good chance it will revert toward the MA.

So, if you're seeking to initiate your trades, entering them at that point could result in being stopped out as the market retraces against your position.

Your point is well taken.

Now, let's explore

How to use the moving average indicator to ride massive trends effectively.

Here's a secret I want to share with you:

The key to riding a trend successfully is to have no predefined profit targets. Why, you ask?

Consider this... when you set a profit target, you capped your potential earnings.

And how can you expect to ride a trend if you limit your profits?

I'm not suggesting that having a profit target is wrong, as it can work well for swing traders.

However, having a profit target can be counterproductive if your goal is to ride a trend.

So, you might be wondering:

"Alright, Rayner, I understand that having a profit target isn't ideal for trend riding. How do I use the moving average to ride the trend?"

It's quite simple.

You achieve this by trailing your stop loss; the MA indicator provides the means.

Additionally...

You're likely aware that the MA can serve as dynamic Support and resistance (SR) in a trending market.

Occasionally, it can garner significant respect from the market for extended periods (and I mean long).

Here are a few examples, starting with riding the rally at (DE10YBEUR):

Riding the rally at (USD/ZAR):

Riding the sell-off at (BCOUSD):

Here's an important pro tip to keep in mind:

The choice of parameters for your MA will determine the trends you capture.

A short-term MA, such as the 5 EMA, is ideal for riding short-term trends. Conversely, a long-term MA, like the 200 EMA, is better suited for riding long-term trends.

Now, let's explore

How to use the moving average to identify the best markets to trade.

Imagine this scenario...

You're about to participate in a drag race, where the top prize is $100,000. You have two car options: a Bugatti Veyron or a Toyota Vios.

Which one would you choose?

Most likely, you'd opt for the Bugatti Veyron. It boasts more horsepower, is faster, and has a superior braking system.

Now, you might be wondering:

"What does this have to do with trading?"

Well, the principle is the same.

If you want to go long, you'd want to enter the strongest market. And if you're considering going short, you'd prefer the weakest market.

This strategy enables you to select the best market and increases the probability of your trade succeeding.

So, how do you determine the best market?

You can do this by employing a concept called relative strength.

There are various methods to gauge relative strength, but one of the simplest ways is using the MA.

Here's my 3-step process:

Step 1: Choose markets within the same sector. For example, if you assess indices, compare markets like S&P, Nasdaq, Dow, etc. If you're looking at the USD, compare currency pairs such as AUD/USD, NZD/USD, USD/CAD, USD/JPY, EUR/USD, etc.

Step 2: Plot the 20 and 50 EMA on your charts.

Step 3: Assess the steepness of the MA. A steeper slope indicates a stronger or weaker market.

In this example, let's compare the relative strength between USD/CAD and USD/JPY:

Let's continue with this powerful strategy.

A moving average trading strategy that lets you capture big trends

This strategy doesn't rely on MA crossovers. Instead, you'll utilize the MA indicator to pinpoint areas of value on your chart, enabling you to enter existing trends and ride them to their full potential.

Here are seven crucial questions you should ask yourself:

• Which time frame are you trading?

• How much are you risking on each trade?

• Which markets are you trading

• What are the conditions of your trading strategy?

• Where will you enter

• Where will you exit if you're wrong

• Where will you exit if you're right

Timeframe: Select a timeframe that aligns with your personality and schedule. For example, trading the 4-hour and daily charts would be suitable if you have a day job.

Risk Management: It's vital to risk only a fraction of your equity on each trade to withstand potential drawdowns. Keep your risk at no more than 1% of your trading account.

Market Universe: You should be prepared to trade approximately 60 markets from five sectors: Agriculture Commodities, Currencies, Equities, Rates, and Non-Agriculture Commodities.

Now, here's the precise moving average trading strategy you can implement:

• Uptrend Conditions: If the 200 EMA points higher and the price exceeds it, you're in an uptrend.

• Entry Criteria: In an uptrend, wait for a "two-test" pattern at the dynamic Support, determined using the 20 and 50-period MA.

• Entry Point: When the price tests dynamic Support twice, go long on the third test; this is your entry.

• Stop Loss: If you go long, place a stop loss at 2 ATR (Average True Range) from your entry; this is your exit if you're wrong.

• Take Profit: If the price moves in your favor, take profits when the candle closes beyond the 50 EMA; this is your exit if you're right.

The same strategy can be applied in reverse for a downtrend.

Here's an example of this moving average trading strategy in action, showcasing

A winning trade setup in (XAU/USD):

A winning trade setup at (BCOUSD):

A losing trade setup at (AUD/USD):

You've brought up some crucial considerations to keep in mind:

1. Confirmation Before Entry: Do you prefer to wait for price confirmation before entering a trade?
2. Market Selection: Which markets are you planning to trade using this strategy?
3. Timeframe Selection: What timeframes are you most comfortable trading on?
4. Risk Management: How much are you willing to risk on each trade?

It's important to note that this trading strategy has no rigid rules. Instead, you can tailor the MA trading strategy to align with your unique personality and time availability.

If you want to delve deeper into Moving Average SECRETS, check out the video you shared in the link. It can provide valuable insights to enhance your understanding of this strategy.

FAQ

In summary, the Moving Average indicator offers many benefits, including helping you identify trends and areas of value, setting stop losses, timing entries, riding trends, and selecting the most promising markets. This has shed light on MAs' power and provided valuable insights for your trading journey.