5 SMA & 10 SMA Moving Average Crossover Swing Trading Strategy
There is no best moving average crossover strategy for swing trading regardless of what anybody tells you.
All we can do as swing traders is put the odds in our favor by using a few technical indicators as well as price action. We need an edge and even a small edge can build your trading account if you trade it consistently.
This swing trading strategy will use a few technical analysis tools that are designed to show us if we are in an environment that supports a trade.
- We are going to use 2 moving averages to determine the direction of the trend. For this strategy, we are going to use the 5 SMA and 10 SMA (simple moving average)
- The stochastic indicator will be used with the settings 14,3,3 and the levels 80 and 20. We will use these levels to indicator an oversold/overbought market condition
- The RSI (relative strength index) will be set to 14 and we will use the 50 level to help confirm a strong trending environment.
Consult your trading platform user manual to show you how to apply these technical indicators onto your chart.
What A Moving Average Crossover Means
There is nothing magical about any moving average crossover. Even the so called “golden cross” doesn’t pan out in extensive testing as having any deep meaning. Moving averages, like all technical analysis indicators, are derivatives of price.
Moving averages simply calculate the average of X number of price points in the past. Obviously when a trend is slowing down the price range decreases and you start getting closing prices closer to the one previous.
What may appear to be a moving average supporting price is simply an artifact of slowing price action which allows the average to catch up to price.
When we use it for trend direction in the crossover, all we are seeing the average of the previous 5 closes and the average of the previous 10 closes are getting smaller. You eventually see the crossover occur.
We will use the cross as the first indicator for a sell signal or a buy signal.
This is the daily chart of the EURUSD. Since we are looking at swing trading strategies, I much prefer longer term time frames for trading so swings can actually develop that have the potential to run. Choose the time period you want to trade and be consistent.
If you are trading a daily chart, avoid the temptation to zoom in or out to a different time period to convince yourself of a trade. You also want to monitor any current positions on the time period you entered the trade on.
A few key points:
- The 5 and 10 SMA are a fast and slow moving average which we will use for the first signal in our trade setup. They will help us define the new trend direction.
- The stochastic will be used for oversold and overbought. We won’t ignore the cross of the lines if they take place around the 50 level. We only care about this indicator if the moving averages have crossed.
- The RSI will be one more tool to see if price is either breaking down for shorts or is gaining strength for a buy signal. This is the last variable in a buy or sell signal.
We will not ignore price action or support and resistance. Nothing pays but price and you will see an example where price structure would have had you sitting on your hands (although the setup never does confirm).
What Is A Sell Signal?
These numbers do not represent what we see on the above chart. That will be discussed after you learn the setups.
- Wait until 5 sma crosses 10 sma to the downside
- Wait for the candlestick that forced the crossover to close.
- Look down and see if the Stochastic indicator either above the 80 level or has started to head down below the 80 level.
- Check to see if the RSI indicator is breaking through the 50 level
- If both 3 and 4 are true, then place a sell stop order 3-5 pips below the low of the candlestick
- Your stop loss can be above the high of the last candlestick or a 2 bar high.
What About Profit Taking?
You can trail your stop loss above each lower high to really get some home run trades. You could also exit on the next crossover or if there is signs of exhaustion coming into the market.
I will say it again…whatever you choose to do, be consistent in your approach. This is where using a trading plan and logging all your trades will be important. You can’t fix what you don’t track.
What Is A Buy Signal?
Your signal to buy is the exact opposite as a sell signal.
- Upside cross of 5 and 10 SMA
- Wait for close candlestick
- Stochastic is below the 20 level and rising ( or recently crossed)
- RSI is breaking 50 level
- If 3 and 4 are true, place a buy stop order 3-5 pips above the high
- Your stop loss can be below low of previous candlestick or 2 bar low.
Swing Trading Example Of Crossover Strategy
You can open the chart above in a new window so you can follow along.
- Everything sets up nice for this sell signal. The crossover occurs to the downside. The stochastic has recently turned to the downside and RSI has broken 50. We don’t get a lot of price movement here but we also have just come from a period of price movement that made up an ascending triangle.
- You could exit the previous trade here. This is a beautiful buy signal as the crossover occurs, Stochastic is rising and RSI has just broken 50
- No sell signal so no trade exit. RSI doesn’t touch 50, Stochastic crosses back up around the 50 level.
- No sell signal as Stochastic still bullish, RSI still strong.
- No sell signal. Stochastic has turned and so has the 5 and 10 SMA but RSI is still bullish. Also notice that when RSI bottoms at 50, the black line on price is showing support structure. We can also see the Stochastic is heading toward oversold and that combined with our support equals no trade and no long trade exit.
- If you missed the original long or like to add to positions, you can get on-board here. I won’t describe it…..what do you see?
That initial long trade is up 796 pips as of this chart!
This is a great swing trading strategy that harnesses the power of common technical indicators:
- Moving averages
- Relative strength index
- Stochastic oscillator
We also included common price structure (support and resistance) and we need price action to get us into the trade via stop orders.
As will all swing trading strategies on this site, test them, tweak them and prove to yourself they can work.
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Hi everyone i will share my trading system also everyone can come in this topic to discuss and make it better !Here my trading system with indicators :TMA ( Triangular moving average )PTL AlertBull Eye ForecasterADRSignalStopAnd this is my rules : TF using H1* Long entry :When candle upper Bulleye ForcasterPLT Alert make Green Candle and DotSignalStop change into Aqua color* Short entry :When candle below Bulleye ForecasterPTL Alert make Violet Candle and DotSignalStop change into Magenta color* Stoploss and TPI use stoploss when SignalStop alert dot Aqua and Magenta appear below and upper Candle when i take entryI TP using ADR High and Low or Candle touch in TMA bands or opposite entry
The 3EMAS swing trading system is a very simple trading strategy that is based on 3 exponential moving averages(ema). These are 10ema, 25ema and the 50ema. A trade is initiated on the FAILURE of the retracement that happens after the 10ema crosses the 50ema. Now, you may wonder, why not initiate a trade when the 10ema crosses the 25ema on the very first instance? Well, the simple answer I can think of is this: the 50ema line acts as a support if price is above it and acts a resistence when price is below it, therefore, to make sure that price does not bounce off from this 5oema line, the 10ema must cross the 50ema before a trade can be taken. Timeframe: 1hr and above Indicators: 10ema, 25ema and 50ema Currency Pairs: Any Trade Entry Rules: Place a buy stop order 2-5 pips above the the high of the candlestick which has a lower high than the previous candlestick after the 10ema crosses the 50ema to the upside. Place a sell stop order 2-5 pips belwo the low of the candlestick which has a higher low than the previous candlestick after the 10ema crosses the 50eam to the downside. If the buy stop/sell stop order is not executed then continue to move the buy stop /sell stop order above/below each new lower high/higher low that forms until the retracement fails and the high/low of the candlestick is broken and trade is executed. Take Profit You can use previous swing low levels as your profit target for a sell trade or previous swing high level for a buy trade. Or another option is not to have a profit target but use a trailing stop to place behind each lower swing high(for a sell trade) as your trade moves in favour so that your can ride out that trend for as long as you can extracting maximum pips out of the price swing until you get sopped out. Do the exact opposite for a buy trade. Stop Loss Placement For a buy order, place your stop loss 2-5 pips below the low of the candlestick that has its high broken which then activated your buy stop order. For a sell order, place your stop loss 2-5 pips above the high of the candlestick that has it low broken which then activated your sell stop order. Trade Management One of the best way of trade management is to trail stop behind lower swing highs (for a sell trade) or trail stop below higher swing lows, This enables you to lock in profits as trade moves in favor until your profit target is hit or if you don’t have a profit target, you can ride our the trend as far as it can go until you get stopped out. See the attached chart for more clarity regarding this. Advantages of the 3EMAS Swing Trading System A very simple forex trading system, easy to understand and use. In strong trending markets, there is potential to make large profits very quickly. Disadvantages of the 3EMAS Swing Trading System Ema’s are lagging indicators therefore any trade taken based on these indicators means that you are getting into a trade after price has moved, sometimes to a great deal already so you may not be entering a trade at right time If price moves a great deal, when you enter a trade, it may be due for a reversal and this would also get you stopped out. This trading systemwill perform poorly in ranging markets.
You need to follow the rules to get 100 pips plus per day.Every thing is in the zip file attached