How to Trade with the Moving Average Part II

One of the important groups of technical indicators is trend indicators. Trend indicators allow traders to follow market trends and signal the closing of a trading position when there is a trend change. However, in a market that does not follow trends, price volatility in the sideways, horizontal direction can lead to several money-losing signals (whipsaws). Moving Average is an example of trend indicators.

To read about the first two ways of trading with the moving average, click here.

Other ways of trading with the moving average are:
Using three moving averages (Triple Crossover Method): This method activates a buy signal when the short term average crosses above the two long term averages. For the sell signal to be turned on, the short term average needs to cross below the two long term averages. Another method to use three moving averages is by taking the long term average as an indicator of market trends and using the going above and/or below of the other two moving averages to activate buy/sell predictions.

Using Moving Average Envelope: This method works on the assumption that currency pair prices do not move beyond a range of plus/minus two percent from the moving average, unless there is too much volatility with respect to price. It creates two new moving averages by adding and subtracting N percent (for example, two percent) to a single moving average and adding the two derived moving averages to the single moving average. It activates a buy signal when the price moves to the lower derived average and predicts a selling opportunity when the price reaches the upper derived moving average.

Price & Moving Average of the High & Moving Average of the Low: This method activates a buy signal when the actual price of a currency pair moves above the moving average of the High and a sell prediction is set into motion when the price falls below the moving average of the Low.

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