The multiple timeframe moving average forex trading strategy uses one medium-term and one short-term timeframe to improve the odds for successful currency trading. The strategy is designed to trade only in the overall direction of the market trend.
Always remember: the trend is your friend. If you buy dips in the uptrend, you are making pips. If you try to short, you will lose pips.
Forex Chart Setup
- Time Frame’s Used : 1 hour and 5 min chart
- Recommended Trading Sessions: Euro and US
- Currency Pairs: Any
Indicators:
- 5 EMA (5 exponential moving average)
- 100 Exponential Moving Average (EMA) for 1 hour chart
- 200 SMA (200 simple moving average)
Step 1) Defining The Overall Currency Trend
Price trading above 100 EMA > Trend is up.
Price trading below 100 EMA > Trend is down.
In the example above, the overall trend in the Pound/Dollar is clearly up.
Forex Moving Average Cross-over system defined
A moving average cross-over system consists of at least 2 moving averages, a long period MA and a short period MA. A signal to go long is generated when the short MA crosses the long MA from below. A signal to go short is generated when the short MA crosses the long MA from above.
Step 2) Using A Moving Average Cross-Over System To Enter A Trade
The price is trading above the 100 EMA in the 1 hour GBP/USD chart, so we will look for long trades only.
GBP/USD Trade Explained
- The moving average cross-over system gave us a signal to go long @ 1.5889 in the uptrend defined by the 1 hour chart.
- Stop loss is placed 3 pip below the most recent level of support @ 1.5860.
- Target is twice the risk or at least 50 pips.
- Target is 58 pips @ 1.5947.
- About one hour later, the trade hit our target for 58 pips.
