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You will learn about the Marco Moving Averages’ strengths and tricks from me. What you believe you know about moving averages is probably wrong.
The majority of users misuse them!
Moving averages are strong instruments that may provide you with a LOT of information. You may learn from them:
the trend’s movement’s direction
Determine the long, medium, and short-term trends. the way you ought to be trading.
where both support and resistance are strong. Give you a signal for admission.
Send you the exit signals. Discover sideways markets.
Problematically, most traders use moving averages in the wrong way. It is generally accepted that you should utilize two moving averages and enter trades when they cross each other. This is a possibility, but it’s crucial to use the appropriate averages and settings.
Let’s now discuss the many kinds of moving averages.
Moving Average Types
Different forms of moving averages exist:
1. Simple (SMA)
2. Exponential (EMA)
3. Smoothed (SMMA)
4. Linear Weighted (LWMA)
5. Hull (HMA)
6. Triangular (TMA)
7. Double Exponential (DEMA)
8. Triple Exponential (TEMA)
Moving averages may be used to analyze various price segments in the market. The Moving Average may be determined for each candle (bar) using the:
Hundreds of Moving Average versions have been created by inventive programmers thanks to MetaTrader’s programming capabilities.
The Simple Moving Average (or SMA) and the Exponential Moving Average are the two types of Moving Averages that are most often employed (or the EMA).
Moving Averages may be combined with hundreds of other indicators or used as a solo indicator on a chart.
We’ll examine the SMA and EMA on the pages that follow and discuss how to utilize them effectively.
The distinction between an EMA and an SMA is seen here. The moving average you can see on the chart is my unique Marco-MA2Color version. It is green when it slopes upward, and red when it slopes downward. I wish to offer you this signal.
Identifying A Trend
Moving averages are fantastic tools for spotting trends.
Trading in the direction of the general trend is how traders profit from the markets the most. Using a longer period of Moving Average is the quickest and best technique to spot a trend.
The “50 Day Average” is one of the industry standards.
When the price is higher than the 50-day MA, the trend is upward, and we only consider long transactions. When the price closes above the Marco moving average indicator, it prints in bright green.
Only when the price is below the 50-day moving average, which indicates a downward trend, do we take into account short bets. (The indicator shows a red line when the price closes below the Marco moving average.)
Price crossings are not often utilized as buy or sell signals. Instead, it’s employed to pinpoint the direction in which we ought to aim our trading placements. We begin searching for long trades when the price goes above the 50 Day. We begin searching for sell trades when the price crosses below the 50 Day.
Although stock traders often utilize the 50-Day, there are other ways to determine the trend’s direction. Other options exist.
To look at the slope of the line on the chart, I prefer to use the 34 Simple Moving Average.
The Marco Moving Average indicator in the figure below displays bright green when the slope is upward and red when the slope is downward.
The trend direction will be rising and the best bets to make will be long transactions when the slope of the 34 SMA is up. Short trades will be relatively tiny and often unsuccessful during an upswing. The trades that are long will have the strongest momentum and potentially go far.
When the slope of the 34 SMA is negative, the general trend is negative and short trades are the ones that seem the best.
We only aim to enter long trades when the 34 SMA is inclined higher. No matter if the price is above or below the SMA, as long as it is sloping upward, we want to be entering long trades.
We need to choose a setting that isn’t too quick while looking for trends. We should refrain from utilizing values like 3, 5, or 8. Although 13 is a quick-moving average, it may still be useful. Other slower moving averages, including 21, 34, and 55, are also helpful.
Using two exponential moving averages is another widely used method of trend detection. both quickly and slowly.
I’ll use the 12 EMA and the 26 EMA in this case.
The trend is upward when the 12 EMA crosses above the 26 EMA. When the trend is upward, we only consider taking long positions.
The trend is downward when the 12 EMA crosses below the 26 EMA. When this occurs, we only search for short trades.
Crossovers are NOT indications to enter a long or short position. Crossovers merely serve to lead us in the direction of where to seek for trades. As soon as the Moving Averages (MAs) cross upward, we begin to search for long trades. We begin searching for short trades when the MAs cross to the downside.
The 12/26 settings are reasonably speedy settings for two exponential moving averages (they are still excellent values), while the 21 EMA and the 55 EMA are slower options.
The longer it takes to change the trend direction, the slower the parameters are set (the larger the period number). In addition, it is less likely to be fooled by minute changes in the market that can cause the trend on a series of quicker Moving Averages to alter.
Using tiny settings like 3/5, 5/8, or other single-digit values is not recommended. They don’t assist when trying to determine the direction of a trend since they may quickly become quite disorganized and switch back and forth.
I created a unique crossover indication just for you, one that makes it simple to spot crossovers and provides you with a clear picture of the trend.
I want you to have something called the Marco-ColorCrossover indication.
Both moving averages become green when the 12 EMA crosses above the 26 EMA. In addition, a green fill will be added in between the moving averages to create a ribbon-like pattern.
Both moving averages will become red and there will be a red fill-in between them when the 12 EMA crosses below the 26 EMA.
The indication offers choices. The 12 EMA and the 26 EMA don’t need to be used. You may alter them whatever you want. One of each SMAs may be used. You may choose the price calculation technique (Open, High, Low, Close) and even decide whether to move one or both moving averages.
Such a lovely indication, thank you!
Support and Resistance
We may get “Dynamic Levels of Support and Resistance” using a moving average.
The word “dynamic” is employed because the Moving Average moves in tandem with changes in price. It can track the price and predict when the market will successfully retrace off the MA.
We utilize a 34 EMA in the figure below (Image 7). It serves as support when the price is above the 34 EMA, resistance when the price moves below it, and then support once again.
Simple Moving Averages may also be used to determine dynamic support and resistance; an EMA is not required constantly.
Start with a moving average like the 34 EMA on a fresh chart to determine whether it functions well as support and resistance. Perhaps not… If it doesn’t, experiment with other Moving Average settings until you find one that works. Once you find the right moving average setting, you can be sure that subsequent levels of support and resistance will remain at that level.
Moving Average crossings are effective at giving us trade signal information.
When searching for entrance signals, smaller settings are ideal. We save the most extensive options for trend detection.
The EMAs in the picture below (Image 8) are:
The crossings are obvious as day with the Marco-ColorCrossover indictor. Crossovers up and down go from red to green and from green to red, respectively.
The crossovers perform well IN THE DIRECTION OF THE TREND.
When the market is in motion, it tends to move more in the trend’s favour than against it.
We only place trades in the trend direction in order to reduce losses and increase the win ratio since taking every crossover would result in as many losses as winnings.
The entry signs for an uptrend occur when the crossovers cross upward. The entry signs for a decline occur when the crossings cross downward.
Moving Average crossovers function well as both entry and exit signals. When we quit a trade, we utilize the identical EMA parameters that we used when we entered it.
The exit would be when the Moving Averages crossed downward to indicate a long trade when the Moving Averages crossed higher.
The exit would be when the Moving Averages crossed higher, which would occur when the Moving Averages crossed downward to signify a short trade.
A Moving Average crossover is a great signal to close a position.
We can use the crossover to assist us to seize as much of the potential market shift as we can.
The Moving Average crossover exit approach is a favourite among trend traders. When adopting this exit strategy, the benefits often double, treble, or even exceed the possible losses. The typical profit-to-risk ratio will be 2:1 or 3:1, and it may even be higher.
When the market is heading in the direction that we all want it to, it is wonderful to trade, but sometimes it turns sideways and becomes too hazardous.
Choppy market circumstances are a trader’s worst nightmare, but a moving average may assist us to identify these market situations.
A moving average will seem to travel through the middle of a market that is going laterally, one that is choppy and non-directional.
The 34 SMA is seen on the chart in the picture above (Image 10).
The price is oscillating back and forth above and under the Moving Average. It is neither acting as support nor resistance for the market. The market doesn’t remain on one side of the Moving Average for very long, and it doesn’t go farther away before being dragged back in.
We DO NOT wish to trade in this market. We avoid markets of this kind.
Moving Average Trading System 1
We are going to take the Marco-Color Crossover and build a trading system out of it. It will be called MATS1 (Moving Average Trading System version 1)
We will use the Marco-Color Crossover indicator twice. This is what it will look like:
You can already see how this is going to be traded by glancing at the chart above.
When the EMAs cross into the trend direction, we will use the SMA to determine the trend direction before entering trades in that direction.
Setting up the chart:
Apply the Marco-Color Crossover indicator in Step 1 using the 8 EMA and 34 SMA values.
Use the following parameters when applying the Marco-Color Crossover indication a second time: EMAs of 3 and 8
The 8/34 Color Crossover must be green.
The 3/8 Color Crossover must be red.
Enter a long trade when the candle closes and it turns the 3/8 Color Crossover green.
Stop Loss goes under the recent swing low.
Close the trade when the 3/8 Color Crossover turns red.
(Alternatively, you can choose to place a 1:1 Profit Target.)
Step 1: Red must be the 8/34 Color Crossover.
Step 2: Green must be the 3/8 Color Crossover.
3. When the candle closes and the 3/8 Color Crossover becomes red, place a short trade.
Step 4: Stop Loss is exceeded by the most recent swing high.
When the 3/8 Color Crossover becomes green, go to step 5 to close the deal.
(Alternatively, you might provide a 1:1 Profit Target.)
Moving Average Trading System 2
The Marco-Color Crossover and the Marco-MA2Color will be used to create a trading system.
Its name will be MATS2 (Moving Average Trading System version 2) This is how it will appear:
Setting up the chart:
Use the 50 SMA settings when using the Marco-MA2Color indicator.
Use the settings: 12 EMA and 26 EMA when using the Marco-Color Crossover indicator a second time.
Use the Marco-MA2Color indicator with the 12 EMA settings.
It must be green at the 50 SMA. The 12/26 EMAs must be green and above the 50 SMA.
Red is shown on the 12 EMA.
When the candle closes and the 12 EMA becomes green, place a long trade.
Stop Loss is below the most recent swing low.
Exit the position when the 12 EMA turns red.
(Alternatively, you might provide a 1:1 Profit Target.)
The 50 SMA must be red in step 1. The 12/26 EMAs must be red and below the 50 SMA.
Green appears on the 12 EMA.
When the candle closes and the 12 EMA turns red, enter a short trade.
Stop Loss is set higher than the most recent swing high.
When the 12 EMA goes green, close the position.
(Alternatively, you might provide a 1:1 Profit Target.)
50 Day Moving Average
I previously displayed a 50 Day Moving Average in the instructions. In that case, the moving average changed from green to red depending on whether the price closed above or below the 50-day moving average. With the help of the Marco- Color Crossover indicator, I’ll demonstrate how to achieve it.
The Show Fast MA option must be set to false once the Fast MA has been set to 1 EMA. Setting the Show Fill option to false will also make the Color Crossover fill invisible.
When used properly, moving averages are a powerful tool. And as you’ve seen, with simply moving averages, we are able to construct a whole trading strategy.
Longer period Moving Averages for trend direction, as we have taught.
longer timeframe Moving averages may serve as both resistance and support. Trade in the trend’s direction.
Moving averages with a shorter time for entry signals.
Use the same moving averages for exits as you would for inputs.
To identify a no-trade flat and sideways market, use the moving average.
The majority of trading strategies are either loosely or explicitly based on moving averages. Some of the most popular indicators, such as the MACD, are wholly reliant on MAs.
Utilize them to your advantage. When used correctly, moving averages may be a useful instrument for making money.
I wish you success in your trading endeavours!
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