Forex Trading Strategies with SMA (Simple Moving Average)

Forex Trading Strategies with SMA (Simple Moving Average)

This is a system based on a simple moving average and trading the currency pair EUR/CHF on a 4 hour chart. The MACD indicator is also used to confirm the entry point along with the volatmeter. The system is based mainly on the 100 period simple moving average which serves as a support/resistance line. The SMA line can also be used later to determine exit points. The indicators used in this strategy are the 100 Period Simple Moving Average, Damiani Volatmeter set at 13, 50, 1.3, True, and the MACD set at 15,26,9.

The entry rules for this strategy are to buy or take a long trade when the price closes above the 100 SMA and the MACD histogram goes above 0 line. You can sell or take a short trade when the price closes below the 100 SMA and the MACD goes below 0. The volatmeter must also show the green line to have crossed above the white in either case. This assures you that there is actually a trend going on and it is safe to trade on the direction of the SMA.

Here is a warning to consider on this strategy. If the price bar that closes above or below the 100 SMA is more than 100 pips, dont enter the trade. This is an extremely large move in price and you should wait for a retracement back to the SMA before you decide to enter.

For the exit of this strategy, the first positions can typically get 40 pips but a re-entry may take place on a second position and can be carried beyond the 40 pip profit into the 70 pip range. Then, if you manage to get three entries before taking profit, the last position can also have a trailing stop of its own set at breakeven.

Follow this link to a sample chart of an example: http://ifxprofits.com/article09a.jpg . The example shows a price break above the SMA and below that, the other two red circles indicate further confirmation from the volatmeter and the MACD.

Another example entry and re-entry is shown in this chart: http://ifxprofits.com/article09b.jpg . In this example, we see one entry point and four possible re-entries when the price returns to the SMA line and closes above it once again. Of course, profit taking would likely have happened before all re-entries but long term investors may choose to hold these positions and take profit later.

It is important to note, in this example, how all these price breaks are confirmed by the volatmeter and the MACD readings. A final note indicates how the second re-entry point is not confirmed by the MACD after the first candle closes above the SMA. It is only the first candle in that red circle which is tradable according to this system. However, the other candles do prove to be profitable later on, illustrating a leniency of the price movement in favor of the upward trend.

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