10 and 20 SMA With 200 SMA Forex Swing Trading System
The 10 and 20 SMA with 200 SMA Forex Swing Trading System Is A Very Simple Swing Trading System You Can Implement Without
Any Difficulty At All.
But First Lets Talk about Moving Averages…
WHY MOVING AVERAGES ARE USEFUL
There are two main reasons why moving averages are useful in forex trading:
- moving averages help traders define trend
- recognize changes in trend.
If you see any forex trading strategies that have moving averages in them, the use of moving averages would be pretty much related to the two reasons given.
I don’t want to bother with too many details about moving averages here…so moving on.
THE TWO SIMPLE MOVING AVERAGES(SMA):10&20 SMA’s
With this swing trading strategy, when the faster SMA, 10, crosses the slower SMA 20, it often signals a trend change.
So when you see 10 SMA cross 20 SMA to the upside then you know there is a great possibility that the market is in an uptrend.
If 10 SMA crosses 20 SMA to the downside, then you know there is a great likelihood that the market is in a downtrend.
The 10 and 20 SMA with 200 SMA Forex Swing Trading System Trading Rules
- Trading Timeframes: Stick to 4hr timeframe and the daily Timeframe.
- After the faster 10 SMA crosses the slower SMA 20 look for these reversal candlesticksto enter your trade
- For Selling, look for bearish reversal candlesticks and place sell stop order 5 pips under the low of that bearish reversal candlestick for buying, look for bullish reversal candlesticksand place your buy stop or buy stop order 5 pips above the high of that bullish reversal candlestick.
- Place your stop loss above 5 pips above the high of the entry reversal candlestick if you are selling and 5 pips below the low of the bullish reversal candlestick if you are buying.
- Set your take profits to 3 times what your risked or look for previous swing high/lows and use these price levels as your take profit target.
How To Use 200 SMA With This Forex Strategy
Now as an added measure to ensure you only trade with the main trend, the 200 SMA can be used a further filter.
- if 10 and 20 sma are above the 200 SMA only take long positions.
- if 10 and 20 sma are below the 200 SMA only take short positions.
This ensures you take trades only based on the significant or main trend which 200 SMA gives you an indication of.
Did you enjoy this? It would mean the world to me if you shared it:
Contrarian: a person who opposes or rejects popular opinion, especially in stock exchange dealing. Being a contrarian trader is not as simple as going against the crowd on a trade. Doing the opposite of the popular opinion all the time will not win over time, instead it will likely put you on the wrong side of trends more than anything else. The right way to be a contrarian is to use backtested signals with an edge to enter at opportune times that create good risk/return ratios on entry. If you want to be a contrarian it is very important to use stop losses to keep your risk of loss small if you are wrong. As a trend runs for a very long time the risk/reward ratio diminishes over time and the possibly of a reversal increases. If you want to bet against a long trend it is crucial to wait until the trend bends for a better probability for a reversal. Here are four contrarian trading set ups: Blow Off Top: A blow off candle top where you open higher with a gap but close lower than the open. The interday trading range is rejected with a pinbar. This rejection happens on huge volume and it closes back under the 70 RSI. Buying The Dip: One good signal for buying a deep dip in an uptrend or a sideways market is a pullback to the 30 RSI. This is especially a good signal for index ETFs and big cap stocks. This is the general area where bounces happen as sellers run out of steam as the market has gone down too far and too fast. If price goes under the 30 RSI intrday and closes back over that is one possible signal to buy as it emerges back out of oversold. Closing under the 30 RSI is a danger sign that the downtrend may keep going. Wait for a confirmation of a reversal before buying an oversold dip for a better probability of success. Buying a Break Out to All Time Highs: Few people think about how contrarian it is to buy a break out to new all time highs. Few traders feel comfortable buying breakouts as they feel like it is too high and would prefer to by low and sell high. If a stock runs from $50 to $100 and doubles it will first have to break out to $51 and trend over time to that high price of $100. Sometimes breakouts go higher with no pullbacks until the trend is over. Many of the greatest trend following traders like Richard Dennis, Jesse Livermore, and Nicolas Darvas had systems that focused on break outs as momentum signals. At all time highs everyone is holding at a profit and there is little selling pressure from stop losses, profit taking is the primary selling pressure at all time highs. Short sellers will also create buying pressure as they buy to cover as a breakout trend gets underway. Breakouts work better if they emerge out of longterm price range bases. While these examples are good risk/reward ratios the profitabilty of trading can only come from good risk management, honoring your stop loss and letting a winner run with a trailing stop when you position yourself on the right side of the move.
$SPY has now had an orderly six days straight of lower highs and lower lows. This is what a down swing looks like. Volume has been increasing during this swing lower in prices. Price closed under the 10 day EMA the last two trading days breaking the short term uptrend. The Overbought 70 RSI held as short term resistance on the up trend. The gap up in price from August 27th has been filled last week. The trading range continues to be tight with a 1.93 ATR that has not expanded yet. The $VIX closed above its 200 day moving average last week and the trend in the $VIX is up with higher highs and higher lows in price last week showing an expansion in fear of increasing volatility. The MACD had a bearish cross under last week. $SPY remains near all time highs in price. The next major support level is the 50 day SMA.
Trading the head and shoulders chart pattern can be very profitable if you know how to trade it properly. In this addition to my free price action trading course, I’m going to show you a few profitable ways to trade the head and shoulders chart pattern, including the technique that I prefer to use. The head and shoulders signal is the first long-term price action pattern that I have gone over in this free course. There are several ways to trade this, some more aggressive than others, and it’s good to know how different types of traders are likely to approach this chart pattern, regardless of the technique that you choose to use. Note: There are bound to be other ways to trade this chart pattern, but when it comes to understanding how the majority of the retail market will trade this pattern, there are really only two classic techniques that you need to know. What is a Head and Shoulders Chart Pattern? The head and shoulders chart pattern is a strong bearish price action pattern that occurs when the market makes the first lower high during an uptrend. The name comes from it’s resemblance to a head and shoulders, with the right shoulder being the first lower high of the uptrend. The neckline is typically drawn off of the candle bodies of the lows after the left shoulder and before the right shoulder. In the image above, the neckline is perfectly horizontal, which is not a requirement. When the neckline is angled upward, the head and shoulders chart pattern is considered, by some, to be less bearish. When it’s angled downward, this pattern is considered, by some, to be more bearish. Note: I haven’t personally found the angle of the neckline to be a good indicator of the strength of this pattern. Instead, whether or not the uptrend has been an extended one seems to be a better indicator of strength in my experience. Trading the Head and Shoulders Chart Pattern Beginning with the standard way of trading the head and shoulders chart pattern, the entry is taken when the neckline is broken. Some traders wait for a candlestick to fully close below the neckline before entering the trade. Others jump in as the neckline is broken, making sure to get into the trade before it takes off to the downside. Your stop loss should be placed above the right shoulder of the pattern. To get your take profit, you measure, centered between the lows that form the neckline, to the highest high in the head of the pattern. Then take that same measurement, from the same starting point, and duplicate it to the downside to determine your take profit (see the image above). The next traditional entry, which I’m calling the “pullback entry,” is similar to the standard entry. Often when price breaks the neckline of the head and shoulders chart pattern, it will pull back to test the neckline as resistance. When this happens, it can provide a good, slightly more conservative, entry point. The entry trigger in the “pullback entry” could be a number of things. Traders sometimes combine this particular chart pattern with the signals from another trading system. It could also be a candlestick signal, or simply a candlestick that bounces off of the neckline (like the entry below). Note: A more conservative approach would be to wait for the candlestick to close below the neckline after touching it. Like the standard head and shoulders chart pattern, your stop loss in the “pullback entry” would be placed above the right shoulder of the pattern. Your take profit would be determined the same way as the standard setup as well. Measure from the center of the neckline to the top of the head. Duplicate that measurement to the downside for your take profit. Finally, I like to trade the head and shoulders chart pattern using a more aggressive approach. If I haven’t already entered at the top of the trend by trading MACD divergence, I try to anticipate the top of a right shoulder forming using either a shooting star candlestick pattern or a bearish engulfing candlestick pattern. In the image above, the entry trigger was a dark cloud cover candlestick pattern. I wouldn’t normally use this moderate candlestick signal on its own, but I would take it in combination with other bearish indicators, such as bearish hidden divergence. After drawing the neckline, I would determine whether or not to take my aggressive entry. I prefer to be able to, at least, move my stop loss to break even before the neckline is tested again. If I can’t do that, I will not take the aggressive entry, because price could find support at the neckline. Note: The trade pictured above would have reached a full take profit before re-testing the neckline. This is ideal, although they don’t all setup this way. My stop loss, in the example above, is 5 pips above the high of the right shoulder. This gives me room to cover the spread plus a little cushion for 15 Minute time frame noise. My take profit is twice my risk. In the example above, you could have easily used the neckline as your take profit level instead. Final Thoughts The head and shoulders chart pattern can be tricky to spot at times, especially in the Forex market. However, it’s worth learning to trade properly, because many strong reversals are preceded by this chart pattern. Just like with candlestick signals, the context in which you trade this chart pattern is very important. A true head and shoulders chart pattern only comes after an uptrend. The more extended the uptrend, the more reliable this chart pattern is. There are many ways to trade the head and shoulders signal. I prefer to use a more aggressive approach. I like to enter early, and move my stop loss to break even before the neckline is even given a chance to act as support. That way, if the pattern doesn’t work out, I still have a chance to make money or break even. I hope you can see why I like trading the head and shoulders chart pattern. With the right technique and a little practice, the head and shoulders could become one of your favorite trading setups too. Good luck and happy trading!