The 10 and 20 SMA with 200 SMA is another simple Forex trading strategy that is very comprehensive and easy to put into execution. This kind of strategy fits to whatever timeframe a trader uses and is appropriate to any currency pair. The primary variables in this strategy are the 10 SMA, 20 SMA, and 200 SMA.
Before delving deeper into how this strategy works, it is essential to know why moving averages are of great importance. It is useful since it efficiently helps traders explicate a trend and recognizes its changes.
SIMPLE MOVING AVERAGES (SMA): 10&20 SMA
In the swing trade context, when the faster SMA 10 overlapped, the slower SMA 20, it denotes that there is a change in trend. To identify as to what moves the trend will go, notice how 10 and 20 SMA interact with each other.
If 10 SMA overlapped 20 SMA to the upside, there is a high chance that the market is in the uptrend. But if 10 SMA overlapped 20 to the downside, then there is a high possibility that the market is downtrend.
RULES
- Conform to the 4-hour timeframe and daily timeframe
- Be mindful when 10 SMA crossed over the 20 SMA. If this happens, search for significant reversal candlesticks. This is the best time to enter a trade.
- If you intend to sell, look for bearish reversal candlestick and place five pips sell stop order under it. As for buying, find the bullish reversal candlestick and put five pips buy stop order above it.
- If you are selling, it is imperative to place your stop loss above five pips just above the entry reversal candlestick. Otherwise, the action is required when you are buying. Place five pips below the bullish reversal candlestick.
- Put up a take profit which is three times larger than what you risked for. Another thing you can do is to check previous swings and utilize price levels as you take profit target.
UTILIZING 200 SMA
To secure that you are trading with the primary trend, 200 SMA can be utilized together with 10 SMA and 20 SMA to filter and expose indicators.
The following advice should be considered to bring out the most favorable result.
- Do long positions if 10 and 20 SMA are placed above the 200 SMA
- Do short positions if 10 and 20 SMA are placed below the 200 SMA
Following these steps will ensure that trading is based only on the primary trend that 200 SMA indicated.