How to Use Moving Average Crossovers to Enter Trades

Thus far, you have learned how to determine the trend by plotting some moving averages on your charts. You should also get to know that moving averages can assist you in determining when a trend is about to end and reverse. And As trend traders, you want to recognize and ride the trend for as long as possible for you to know when to get in and when to get out of the trend.

A trend is a tendency for prices to move in a particular direction over a period. Trends can be long term, short term, upward, downward and even sideways. Success with forex market investments is tied to the investor's ability to identify trends and position themselves for profitable entry and exit points.

Some trends are short-lived, while others last for days, weeks, or even months. But it is not necessity you know how long a specific trend will last. But with the aid of a technical tool known as a moving average crossover you can be able to identify when to get in and out.

Moving average crossover Is a technical tool in forex that occurs when two different moving average lines cross over one another.

Traders often use a simple moving average created with a larger number of periods (such that it is reflective of long term trends) as an average price line – a line that serves as a base point for the market to move with, above or below. Since moving averages are a lagging indicator, the crossover technique may not capture exact tops and bottoms. But it can assist you to identify the bulk of a trend.

A moving average crossover system helps to answer these three questions:

• Which direction might the price be trending (if at all)？

• Where might be a potential entry point for a trend trade？

• When might a trend be ending or reversing？

All you have to do is flump on a couple of moving averages on your chart, and wait for a crossover.

When themoving averages cross over one another, it could signal that the trend is about to change immediately, by such means it is giving you the chance to get a better entry. And By having a better entry, you have the possibility to bag more pips!

If Allen Iverson Allen Ezail an American former professional basketball player. Nicknamed “the Answer” and “AI”, who played 14 seasons in the National Basketball Association at both the shooting guard and point guard positions

made a living by having a killer crossover move, why cant you？

Lets consider another insight at that daily chart of USD/JPY to help explain moving average crossover trading.

Starting around April to July, the pair was in a good uptrend. It topped out at around 124.00, before it slowly down. We observed that the 10 SMA crossed below the 20 SMA In the middle of July. Guess what happened next, guess what happened next？

If you had shorted at the crossover of the moving averages you would have made yourself almost a thousand pips!. Although, not every trade will be a thousand-pip winner, a hundred-pip winner, or even a 10-pip winner.

It could turn to be a loser, which means you have to consider things like where to place your stop loss or when to take profits. You're not just expected to pump in like that without any plan.

Rather, What most traders do is that they close out their position once a new crossover has been discovered or once the price has shift against the position a predetermined amount of pips. This is what Huck does in her HLHB system. She either exits when a new crossover has been made but also has a 150-pip stop loss just in case.

The reason behind this is you just dont know when the next crossover will be made. You may end up hurting yourself ( loosing much) if you wait too long expecting the new crossover.

So One thing to always have at your mind with a crossover system is that while they work beautifully in a volatile and/or trending environment, they do otherwise when price is ranging, so you need to take care. You will get hit with tons of crossover signals and you could find yourself getting ceased out multiple times before you catch a trend again.

In breif, moving average crossovers are pleasant and friendly in pointing out when a trend might be appearing or when a trend might be ending. The system also offers specific prompt for potential entry and exit points.

These prompt should be confirmed with a chart pattern or support and resistance breakouts (which youll learn about later in WikiFX School).