Moving Averages Based Trading Systems
Many traders chase one trading system after another falling victim to one complex system to another. As a trader, what you should try to focus is on finding simple trading systems. Beauty lies in simplicity. When it comes to trading, one of the most simple indicators are the moving averages.
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MAs are used dynamically to calculate the average price of a currency pair or for that matter a security over a defined number of past periods. For example, on a daily chart, a 20 period moving average adds the daily close price for the last 20 days and divides it by 20. In simple terms, an MA is calculating the mean or average price for the last 20 days. When we calculate this price daily, we get a smooth MA dynamic line that tends to follow the price action.
Now, some trading systems use two MAs. When one MA, let’s say with the shorter time period of 5 periods crosses above the longer time period MA like 20 periods, it is considered as a buy signal. On the other hand when the longer time period MA of 20 periods crosses above the shorter time period MA it is considered to be a sell signal.
Whatever, always know that MAs are one of the most simple yet the most potent technical indicators that are used by traders daily in their trading !
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