December 26, 2021 by admin
For traders looking for a trend following strategy, there is nothing better and simpler than using the moving average. One of the commonly used indicator, the moving averages form the basis for many different trend following strategies.
In this trading strategy, we make use of the 200 and 50 periods exponential moving average applied to the 4-hour charts. This strategy does not rely on the moving average cross over but rather enters the trend after it is established and exits on a quick profit.
200 EMA applied to closing prices on the H4 charts: This forms the main basis of our bias. Because the H4 chart interval closely follows the daily charts, trends are well reflected in this time frame.
50 EMA applied to closing prices on the H4 charts: This moving average will be the key towards managing risks in our trade.
The chart below shows the set up for this strategy.
Once the chart is set up, we look for the following criteria:
Sell Bias: 50 EMA must have recently crossed over below the 200 EMA
Buy Bias: 50 EMA must have recently crossed over above the 200 EMA
If either of the conditions is met, we then wait for the following set up to appear:
The chart below illustrates how the sell trade set up is identified.
The chart below illustrates how the buy trade set up is identified.
The advantage of using this trading strategy can be summarized into the following:
The disadvantage of using this trading strategy includes:
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