Moving averages have long been used by traders as an indicator showing the trend direction. Their main use is connected with the fan opening on a certain timeframe and trading along this opening. A wonderful, time-tested regularity. And the variety of moving averages people tried to use is staggering - from MA5 to MA4000! 'Tastes differ' as the old saying goes.
A wonderful regularity that works all the time? Unfortunately, this regularity sometimes fails to show the direction of the coming strong movement. Otherwise, everything would be simple. Despite this, it is the FAN that indicates truly STRONG TRENDS. The main thing is to understand correctly where the market's weak spot is when this very fan opens.
Yes, we may be wrong, but our mistake should cost us much less than potential benefit. This is what a trader's activity is all about. How do you spot this VULNERABILITY, then, the place where we gain advantage over the fickle forex market?
Let's look at the picture described above, from a different angle. Since the fan opening along does not always indicate a strong trend, we must see a point or level where decisions will be made as to where we will move from there.
After the fan opens, the price mostly tries to regain balance and comes back to averages only to make another move along the TREND later. It is in this section of the market that we cannot end up in a grave situation of a steep drawdown or huge losses. It is in this section that we find the most secure area for entries along the emerging trend. What is the advantage of this approach to MA-based trading, you might ask? The matter is that this approach helps us move along the trend from the spot, as a rule, called in the Masterforex-V forum as THE MOMENT OF TRUTH. Here you can see the very beginning of this MOMENT (for wave analysis fans - the end of the second wave). But even if you don't use wave analysis, this regularity offers space for creativity because losing trades in such places are closed by short stops and make up 10-15% of the situations in which we turn out right. This picture shows that there is a lot of time after an entry like that to cover the position in part, move trades to breakeven and other specific subtleties of a trader's profession.
In this situation we headed in the market's direction, BUT the price did not start a strong trend along our trades and came back to averages. Then the FAN opened up.
What do we see next?
The fan opened upwards and we returned to the AVERAGES. Doesn't ring a bell?
We saw an absolutely identical picture in the previous screenshot, only for a BULLISH move.
However, this time, after a rebound from averages the situation offers what every trader really needs - a movement of SEVERAL THOUSAND PIPS. What was our risk where the price touched the averages? This risk was not only minimal - it approached zero as compared to our profits.
Then, what do we want MOVING AVERAGES TO DO? Only show us the direction of forthcoming movements? Or we should try and look at AVERAGES from a different angle, like they are viewed by students of the BREAK+GLOBAL PRIORITY DEPARTMENT within the BREAK TS Faculty?
The market is always the same for everyone, regularities make up a clear chain, with a beginning and an end. As practicing traders, we need to see the start and end of the CHAIN of events that can produce PROFITS. Also, we have to understand where our calculations are no longer PROFITABLE for us.
This is the direction that our DEPARTMENT and the FACULTY on the whole work on.
This is where I take my leave. Hope to meet you soon, dear colleagues.
Sergey Mitiukov, Head of the BREAK+GLOBAL PRIORITY Department within the Faculty of Flat Break; Automation; Auto-Trading.
