Trick to make your single MA strategy effective
I’m going to show you a simple trick you can use to make your MA strategy effective.
For most traders, identifying the trend is hard. Using a moving average might be the best solution because of its objectiveness. (because we are using pure math when using MAs)
The common way to trade MAs is to buy if price is above the MA and to sell if price is below the MA.
This is a basic strategy.
Entries
Now, I’m going to show you the tweak you can add to make it effective. Use the 30 period SMA this time.
I HIGHLY recommend you use this strategy on high timeframes like 4H or Daily. Trading on a low timeframe chart might put the odds against you because of all the noise.
Also, if there's a big gap messing with your entry or exit, wait for the market to stabilize and give you clearer signals. Patience is key.
👉 For a buy:
Buy on the first close above the SMA whenever price crosses above it (unless this is steeply pointing downwards). This signal can also be used to add to your existing positions.
👉 For a sell:
Sell on the first close below the SMA whenever price crosses below it (unless this is steeply pointing upwards). This signal can also be used to add to your existing position.
Exits
There are 2 exits you can use: Stoploss and condition-based exit.
👉 Buy exit
1. For a condition-based exit, there should be 2 closes below the MA. Find the 2 latest significant relative lows. Find the one which is lower. Exit when any of those 2 closes is below that lower one.
What are relative lows?
Relative lows are lows which have their left & right bar higher than them. Example of relative lows:
Exit example:
In the picture above, we can see a buy at the left of the chart. Then, we see 2 closes below the MA and the 2nd bar which closed below the MA broke the lowest significant relative low.
2. For the SL based exit, it is below the lowest low of the two latest relative lows. Example:
👉 Sell exit
1. For a condition-based exit, there should be 2 closes above the MA. Find the 2 latest significant relative highs. Find the one which is higher. Exit when any of those 2 closes is above that higher one.
What are relative highs?
Relative highs are highs which have their left & right bar lower than them. Example of relative highs:
Exit example:
In the picture above, we can see a sell at the left of the chart. Then, we see 2 closes above the MA and the 2nd bar which closed above the MA broke the highest significant relative high.
2. For the SL based exit, it is below the highest high of the two latest relative highs. Example:
👉 SL Tip: trail the stop based on the next significant relative lows/highs as the trend progresses. This locks in profits and provides more room for the trend to unfold.
This strategy can be used on any type of MA with any period. The principles still remain the same.
Use an Exponential MA or a Weighted MA for intraday trading because these MAs are more sensitive to recent price action. They give more importance to the most recent prices.
This strategy works best in a trending market. This will fail in a sideway market.
So, to lessen the chances of that happening, always use this strategy with proper price analysis. Use the Elliot Wave Theory or Smart Money Concepts or anything else to understand the context of the market.
Then after you've understood the context of the market, you can perhaps use this strategy as an entry trigger.
Remember, no strategy is foolproof. I encourage you to backtest and experiment this thoroughly.
I hope you got value from this!
For most traders, identifying the trend is hard. Using a moving average might be the best solution because of its objectiveness. (because we are using pure math when using MAs)
The common way to trade MAs is to buy if price is above the MA and to sell if price is below the MA.
This is a basic strategy.
Entries
Now, I’m going to show you the tweak you can add to make it effective. Use the 30 period SMA this time.
I HIGHLY recommend you use this strategy on high timeframes like 4H or Daily. Trading on a low timeframe chart might put the odds against you because of all the noise.
Also, if there's a big gap messing with your entry or exit, wait for the market to stabilize and give you clearer signals. Patience is key.
👉 For a buy:
Buy on the first close above the SMA whenever price crosses above it (unless this is steeply pointing downwards). This signal can also be used to add to your existing positions.
👉 For a sell:
Sell on the first close below the SMA whenever price crosses below it (unless this is steeply pointing upwards). This signal can also be used to add to your existing position.
Exits
There are 2 exits you can use: Stoploss and condition-based exit.
👉 Buy exit
1. For a condition-based exit, there should be 2 closes below the MA. Find the 2 latest significant relative lows. Find the one which is lower. Exit when any of those 2 closes is below that lower one.
What are relative lows?
Relative lows are lows which have their left & right bar higher than them. Example of relative lows:
Exit example:
2. For the SL based exit, it is below the lowest low of the two latest relative lows. Example:
👉 Sell exit
1. For a condition-based exit, there should be 2 closes above the MA. Find the 2 latest significant relative highs. Find the one which is higher. Exit when any of those 2 closes is above that higher one.
What are relative highs?
Relative highs are highs which have their left & right bar lower than them. Example of relative highs:
Exit example:
2. For the SL based exit, it is below the highest high of the two latest relative highs. Example:
👉 SL Tip: trail the stop based on the next significant relative lows/highs as the trend progresses. This locks in profits and provides more room for the trend to unfold.
This strategy can be used on any type of MA with any period. The principles still remain the same.
Use an Exponential MA or a Weighted MA for intraday trading because these MAs are more sensitive to recent price action. They give more importance to the most recent prices.
This strategy works best in a trending market. This will fail in a sideway market.
So, to lessen the chances of that happening, always use this strategy with proper price analysis. Use the Elliot Wave Theory or Smart Money Concepts or anything else to understand the context of the market.
Then after you've understood the context of the market, you can perhaps use this strategy as an entry trigger.
Remember, no strategy is foolproof. I encourage you to backtest and experiment this thoroughly.
I hope you got value from this!
