It’s useful to assess price action with a moving average crossover. The concept is to use a longer moving average period against a shorter one – for example the 55-period simple moving average vs. the 5- period simple moving average. When the shorter moving average, crosses above or below the longer averages it may signify a change in direction.
Here are sample trades that illustrate the application of the major analytical technique or indicator involved.
1) Fibonacci Trading
The key strategy is to use Fib levels as targets for your next trade.
A Fib strategy would be to get ready to sell if prices bounce off the key 38.2% Fib line.
Moving Average Crossover Strategies
It’s useful to assess price action with a moving average crossover. The concept is to use a longer moving average period against a shorter one – for example the 55-period simple moving average vs. the 5- period simple moving average. When the shorter moving average, crosses above or below the longer averages it may signify a change in direction. Moving average crossovers are lagging indicators and need to be confirmed by other technical tools.
Multiple Moving Averages
A very useful application of moving averages, championed by Darryl Guppy is the use of multiple moving averages. When you place four multiple moving averages on a chart, it can give you a graphic picture of key support and resistance areas. Also, it provides more information about the momentum. If an area shows moving averages that look like they are compressed close to each other, it is a sign of strong support or resistance and a prelude to a breakout. The example below shows three moving averages that are essentially based on Fibonacci numbers. We have the simple moving averages 89, 50,
and 21. Exponential moving averages can also be used.
Note: Please see Abe’s book “Understanding Forex: Trading to Win” for the remainder of the chapter. Copies can be obtained from the Freebie section of forexhound.com
