Last time out we were looking at a few simple ideas involving moving averages on a candlestick chart. Let’s continue exploring different things you can do with moving averages.
Look at the one hour EUR/USD chart below:
Here we see a pair of moving averages; the green line is a 20 EMA high and the red line is a 20 EMA low. This forms a “channel” of two EMA’s that never intersect. When price action falls below the “low” line, this is a indication to go short, as you can see on the left side of the chart. Notice that when price action moves between the red and green lines (in the channel) the market is consolidating that’s an indication to stay out of the market. Also notice that when price action crosses one side of the channel it tends to continue through to the other side. The lines forming the channel on this chart are little more than 20 pips apart.
It’s interesting to see what you can do when you combine a number of different moving averages together. Imagine taking a range of moving averages stepping by twos or threes from let’s say around 5 to 70 (start with a 5 EMA then add a 7, a 9, and 11, etc). Take a look at the one hour EUR/USD chart below:
Again were looking at the same area of the chart, but this time I’ve added a whole range of moving averages, with the fastest moving averages in red, midrange in cyan, and the slowest and green. You’ll notice that when the market is trending strongly, the spaces between the lines become large and the MA lines are moving away from each other. As the market reverses, the space between the lines get smaller and the lines converge upon each other. Notice in this downtrend that the faster moving averages do not much impinge on the slowest moving ones colored in green, suggesting a continuation of a downtrend after a pullback. Neat stuff and makes for a pretty chart to boot!
Let’s make things interesting and add an oscillator into the mix; is a one hour chart for USD/CHF:
Notice how that when the MA lines are tight together the market is not trending as much is when the MA lines are further apart. Also notice that when the oscillator flipped to the upside, and the market starts to move strongly upwards, the MA line spread out again. Very strong trend strength is indicated by the candles not going into the cyan area. When the market starts to flatten out you see the candles merging into and just barely piercing the green MA lines.
Last time out I mentioned the thing or two about New Year’s resolutions, and to those reading this I would encourage you, if you haven’t already done so, to resolve to learn and experiment some more with Forex charts and see what interesting things you can discover by doing so. You may not come up with a great strategy, but I’m sure you will learn a few things about reading charts and develop a better understanding of Forex price action.
Another fine resolution for the New Year for those who haven’t yet taken the plunge, would be signing up for Sapphire membership in Slick Trade. Learning materials, expert advisors, strategies, trade signals, and the support of other traders just like you. Resolve to be bold and sign up for slick trade today, you’ll be glad you did!
That’s all for today, next time out will look into using moving averages to identify support and resistance levels. Have a great week and, as always, thanks for reading. JC