Trading Forex with Moving Averages

Whilst there are many trading indicators available for Forex trading, most trading software packages and all traders are looking for the perfect system or “holy grail” I must tell you from past experience that no system is perfect and the holy Grail of trading does not exist. Be careful with the indicators you use or you will just be creating losses for yourself.

There are trending indicators with buy and sell signals and indicators for sideways markets. Using too many indicators can create confusion. The market is constantly traversing up and down without end. When the market looks overwhelming, indicators can help us make sense of the confusion.

Probably one of the oldest indicators is moving averages.

Study the above chart with 2 exponential moving averages of 25 and 10. Starting at the top left the red and green line cross each other giving a buy signal at 1.2013 the market moved up to 1.2085 and the lines crossed again at 1.2053. Had we entered the market at 1.2022 and set our stop loss at1.2000 we would have had a good trade. If we did not exit the trade at the top the cross short at 1.2053 would still have ensured a profitable trade.

The signal to short the market at 1.2053 and exit at 1.1767 would have ensured a good trade of  286 pips. Notice though that the confirmation came long after the market started to decline.  Trading only with this method can cause a lot of stress as it is a lagging indicator. Sometimes by the time the confirmation comes the market has completed its run and is ready to move in the opposite direction again. However used in conjunction with other trading methods it can be a good indicator.