I will keep this one brief. I just wanted to outline a simple solution to trend trading.
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This is a simplistic approach, so don’t think that it is the solution to all your trading ! Far from it.
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What I want to outline is the use of just 2 moving averages, for trading.
Take a look at the following chart :
What have I done ? I have plotted a 5 period exponential moving average and a 10 period moving average on an hourly chart of the Eur/Usd.
Basically we just use the cross over of the 2 moving averages to buy/ sell the market.
This is an hourly chart and in order to filter out some of the trades, we will use a 4 hourly chart.
So, the trade should only be taken in the direction of the longer term time frame.
The above chart is the 4 hourly chart of the Eur/Usd. I have changed the
Moving averages to a 10 and a 20 period EMA.
Basically on the first chart, the moving averages crossed around 7am on the 14th Dec and this point is represented by point “A” in the longer period chart ( the second chart).
Therefore, this trade would have been a valid one.
So what’s the point of this ?
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As I said, this is a simplistic way of looking at trading. It’s funny that there is a system which emphasises trend trading. They charge $4995 !! ( yes, read it again ! ).
What they have is coloured bars - blue for up bars and red for down bars. Ok, they have also put in green bars for being neutral.
Essentially, it is a trend following system. Remember that if you were using just the 2 moving averages, then it would “never miss a big move”.
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But, we all know the weaknesses of the moving averages, which is, if the market is sideways, then they will chop you to pieces !However, using a longer time frame takes care of some of this problem, especially if you are fairly experienced.
Enough said here. My apologise to those that found all this confusing……… I went through this quite quickly, just to outline some simple stuff.
May success and happiness be with you as always.
Alex
MagicalForex.com
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Alex graduated in Accountancy in 1994 and has previously worked in a banking environment. However, Alex’s true passion is trading and investing in general. As someone who cares about fellow traders, he likes to help them whenever he can through the peaks and troughs of trading. You can find out more about Alex via his website: www.MagicalForex.com
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