For any Forex trader profiteering is the main aim. But one has to adopt a good strategy for earning Forex profit pips. While there are a lot of strategies that work well, the moving average crossover strategy is quite efficient.
Moving Average Crossover
The moving average crossover is a reliable method. Traders using it have always been in good profit. It is a common indicator. Traders use it widely in both Forex and stock markets. It is very popular since it is very easy to understand and use. In fact, this technical indicator is one of the most used indicators in Forex.
Types of MA
In general, there are two types of moving averages. These are:
• Simple Moving Average
• Exponential Moving Average
Now these averages are on data from a certain amount of time. However there’s a difference between the two.
While the SMA is not time bound, the EMA gives more weight to data from recent past. Therefore, EMA is more current in that sense.
Timeframes for Making Forex Profit Pips
A 10 day SMA is the total closing prices of previous 10 days divided by 10. Now when you plot it on a chart, it closely follows price action. In fact, the less number of days you use, the closer is its association with price action.
Now the most popular way to make use of MA is to use particular time frames. The 4 day, 9 day and also the 18 day timeframes are quite popular for making Forex pip profit. These MAs have helped traders specify market trends.
Now when it comes to entry, one has to wait for the right signal. So when the 4 day SMA crosses to the 9 period SMA and then both these SMAs cross over to the 18 day SMA, you have a strong entry signal. Therefore this is the time to buy or sell. If these SMAs are just floating sideways, then signal is weak. One has to use his or her own judgement.
This is how one makes Forex 1 pip profit many times.
Exit signals are not as objective. But one can wait for these SMAs to get back to original positions. That is a good time to consider exit signals. Trailing stops are a good way to go about the exit strategy. So when 4 day and 9 day period cross back over the 18 day SMA that is a good time to exit.
One must place stops far away. Or else it gets triggered at times before the optimum time. However, it should be close enough to the MA so as to minimize chances of losses. So you can place a stop once the 4 period and 8 period SMAs cross over the 18 period SMA.
One can see that these indicators are easy to work with. Both entry and exit signals are simple to understand. This ease of use is what makes SMA so popular. Also SMAs are good for making Forex profit pips. Therefore it is highly recommended that one adopts moving average crossover strategy for a good trade in Forex.
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