MOVING AVERAGE trading systems that work - complete system!

Moving Average Strategies for Trading

Overview of Moving Average Strategies

• The video presents five moving average strategies focusing on trade entry, stop loss placement, exit strategies, and trailing stop losses.

Strategy 1: Moving Average Tunnel

• The first strategy utilizes two 20-period Simple Moving Averages (SMA) applied to high and low prices to create a "tunnel" effect. This tunnel helps identify potential trades.

• Observing a triangle pattern with lower highs and higher lows indicates bearish pressure, suggesting a short position if the market breaks out of this pattern.

• Entry is considered once the market breaks out of the triangle pattern; stop-loss should be placed above the tunnel's high for optimal risk management. Targeting previous lows can yield a favorable reward-to-risk ratio of 3.4:1.

• As long as the price remains outside the tunnel, traders can adjust their stop-loss accordingly to trail behind price action while maintaining profit potential.

• It’s advised to stick with fixed reward-to-risk ratios rather than gambling with profits when using trailing stops in this strategy. Experimentation with different periods (e.g., 10 or 30) is encouraged for personal optimization.

Strategy 2: Higher Time Frame Moving Averages

• The second strategy employs two moving averages from a higher time frame (200-period SMA from daily charts), creating a broad channel that aids in determining trade direction based on price action relative to these averages.

• When price is below the moving average channel, only short positions are considered; conversely, long positions are pursued when above it, providing an automatic filter aligned with higher time frame trends.

• Common patterns include retests after breaking above the moving average; traders look for opportunities away from this level during such retests to capitalize on upward momentum while trading in line with longer-term trends.

• Confirmation is essential before entering trades; as long as lower highs persist without breaking structure, traders should refrain from going long despite potential signals from moving averages.

• Market behavior may not always align perfectly with moving averages; thus, observing reactions within channels remains crucial for identifying valid trading opportunities even amidst fluctuations in price action dynamics.

Market Analysis and Trading Strategy

Identifying Market Trends

• The market shows signs of improvement with a double bottom formation and higher lows, indicating a potential upward trend.

• A breakout above previous highs is observed, signaling an entry point for traders. Strong breakout candles are preferred for entries.

Trade Entry Considerations

• Stop loss placement can be behind the recent low or halfway into the range to avoid being too close to breakout areas, as retests are common.

• A target can be set at previous highs, offering a 3.2 reward-to-risk ratio; even with a 30% win rate, this strategy remains profitable.

Managing Trades

• Traders may choose to trail stop losses using lower time frame moving averages or maintain a passive approach after entering trades.

• Utilizing higher time frame moving averages helps in determining trade direction and timing during retests.

Pullback Trading Strategy

• Moving averages are effective for pullback trading; sticking to popular ones like the 50-period SMA is recommended.

• The strategy involves waiting for established trends before looking for pullbacks and subsequent breakouts.

Analyzing Market Patterns

• Observing wave patterns (e.g., wave one followed by wave two before entering wave three) aids in identifying potential entry points.

• Flag patterns are highlighted as profitable continuation setups; however, confirmation through breaking last highs is essential before entering trades.

Breakout Confirmation

• Multiple retests of significant levels strengthen breakout signals; stronger levels require more force to break, enhancing reliability.

• If breakouts appear too large, waiting for pullbacks can provide better entry opportunities while considering stop loss placements near moving averages.

Market Analysis and Trading Strategies

Understanding Market Pressure and Breakout Levels

• The current market shows significant pressure with a strong breakout, but the reward-to-risk ratio is low at 1.4 to 2.1, indicating caution in trading decisions.

• Traders may consider waiting for a pullback against the trade direction to find better entry points lower in the market. This strategy could enhance potential gains.

Price Action and Moving Averages

• The market is currently retesting previous highs while maintaining its uptrend structure; however, breaking below the moving average would be concerning for traders.

• Observing price action reveals struggles as the market attempts to push higher, highlighting that trading conditions are often imperfect and require adaptability from traders.

Entry Triggers and Patterns

• A moving average retest can serve as an entry trigger; if the market breaks after this retest, it may present opportunities for scaling into trades or building positions.

• Despite challenges in price movement, patience is essential as trends do not always unfold predictably; understanding these dynamics is crucial for effective trading strategies.

Crossover Techniques with Moving Averages

• The discussion introduces a crossover approach using 4-hour moving averages (40 and 15 periods) instead of traditional methods like the golden cross due to their lagging nature. This method aims to provide clearer directional filters for trades.

• By establishing whether short-term averages are above or below long-term ones, traders can objectively determine whether to pursue long or short opportunities based on prevailing trends.

Trading Approaches Based on Trends

• Utilizing breakouts or pullbacks when prices return to moving averages allows traders to align with higher time frame trends effectively, enhancing their chances of success in trades. Patterns such as flags can also be beneficial during these phases.

• In downtrends where short-term averages are below long-term ones, bearish phases tend to yield smoother trading experiences compared to bullish phases which often involve more volatility and back-and-forth movements in price action.

Conclusion: Pullback Systems Using Short-Term Moving Averages

• Implementing fast-moving averages (13 and 8 periods) helps identify pullbacks after breakouts while ensuring alignment with longer-term trend directions through filters like the 50-period daily average for shorts only when prices fall below it. This systematic approach aids in maintaining focus on profitable trades aligned with overall market directionality.

Breakout and Retest Strategy in Trading

Understanding Market Structure and Breakouts

• The speaker emphasizes the importance of waiting for market consolidation before looking for a breakout and retest, indicating that this is crucial for confirming trading signals.

• A pattern resembling a "hanging man" or "shooting star" is identified, suggesting that the market attempted to push lower but was rejected, signaling potential bearish movement.

• The discussion highlights the significance of breaking below certain structures as a strong bearish signal, which can be used to inform short trade decisions.

• The speaker suggests entering short trades with stop-loss placements either above recent highs or using channel boundaries to manage risk effectively.

• It’s noted that due to high volatility in lower time frames, traders should avoid being overly conservative with their target settings.

Managing Trades with Trailing Stop Losses

• A trailing stop loss strategy is proposed, where traders start with a 2:1 risk-reward ratio and adjust their stop loss behind moving averages as price action evolves.

• Caution is advised regarding tight stop losses due to potential volatility spikes in lower time frames; flexibility in stop placement can help mitigate premature exits from trades.

• The approach discussed involves transitioning from higher time frames for initial analysis down to lower time frames for execution, emphasizing the need for adaptability based on market conditions.