Forex Crossover Moving Average Strategies

Karim Yousfi

Experienced trader & analyst

A.Karim Yousfi is a experienced trader and analyst. He is managing a team of 5,000 traders at Audacity Capital London Trading Floor.

Forex trading is about having the right skills and strategies to trade and make profits successfully. The good news is that there are so many trading strategies one can learn and implement during trading. Moving average forex strategy is one popular method traders use while trading. It is a good indicator that can help you predict what is going on in the forex market.

The forex moving average crossover strategy is popular because it is easy to use and has several trading uses. Read on to understand the moving average strategy, how to use it and why you should use it.

What Are Crossover Moving Average Forex Strategies?

Forex moving average is a lagging indicator as it relies on past prices. The strategy has been there for a long time. They are easy to measure, apply and test. This makes the moving average a great modern trading strategy that can accommodate both the fundamental and technical analysis.

There are two types of forex moving averages strategy traders use. They include the Simple Moving Averages (SMA) and Exponential Moving Averages (EMA).

These two averages differ slightly, especially when it comes to speed and how they are calculated.

What is EMA in trading? Exponential Moving Average provides more weight to the recent price action, while the Simple Moving average is the simple average of forex pair’s movements. Some traders prefer the EMA over SMA because it better indicates the things happening in the market.

Why Use Forex Crossover Moving Average Strategies?

Moving average forex trading strategy is mainly used by new traders as it helps them determine market trends.

Apart from that, they know when to enter and exit a market. Investors and fund managers also take advantage of this strategy to analyze the market.

The best part about the moving average strategy forex traders use is that it can be applied in various trading situations.

This is why you should consider using this trading strategy. Some of the ways you can use a moving average strategy include:

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Trend Analysis

This is one of the most common forex moving average strategy uses. The indicator helps forex traders determine trends in the market to know when to open positions. Traders can use several variations to analyze market trends. For example, they can use a combination of 10EMA and 20EMA, 20 and 50EMA, or 4 50 strategy forex traders use.

Forex traders also have the advantage of predicting a trend direction when using moving averages. A fast EMA can help you be on the market’s right side and eliminate trades going in the wrong direction.

Support and Resistance

If you enjoy support and resistance trading, this forex crossover strategy can help make your trading effortless. The strategy comes with many averages that you can use to make a precise prediction about the market. Some of the period moving averages to use are;

  • 10
  • 20
  • 50
  • 100
  • 200

Many forex traders use the above periods, and because of that, they tend to respect the market. This is the same case as support and resistance levels. When many traders are buying, the market reacts accordingly and vice versa.

Identifying Overextended Forex Markets

Minor trading mistakes can cause you to lose your trade, and entering the market when it’s already overextended is one reason why many traders fail. To avoid this, you can use moving averages to know the exact time to enter and exit the market.

Note that markets tend to normalize after an upward or downward trend. This is why you should use the forex moving average crossover strategy to avoid entering the market when it is too late. You can also combine this technique with the support and resistance method to improve your results.

When Should I Use A Crossover Moving Average Forex Strategy?

Many traders are usually advised to trade when the forex market opens because the markets are very volatile.

This means you must always look at time frames to know when specific markets open. The good news is that forex crossover strategy can be applied to any time frame. This makes the strategy suitable to use.

However, you should always consider the type of trader you are before applying this strategy. For example, there are day traders and swing traders.

Day Traders

When it comes to day traders, they must use moving average indicators that are fast and react to price fluctuations immediately. This is because they trade on a short-term basis. Here are some of the moving average periods you can use:

  • 9 or 10 period
  • 21 period
  • 50 period

Swing Traders

On the other hand, swing traders trade based on high periods. SMA is the best indicator for this group as it eliminates premature signals and noises. The 4 MA swing traders can use include:

  • 20/21 period
  • 50 period
  • 100 period
  • 200/500 period

The Best Forex Crossover Moving Average Strategies

Using the best forex moving average strategies in your trading can help you make consistent profits.

This is because they make you work easier when analyzing the market. Below are moving average strategies you can apply to boost your trading results.

Moving Average Envelopes Trading Strategy

This strategy relies on percentage-based envelopes usually set above and below the moving average. The best thing about this envelope strategy is that you can use SMA, weighted MA, or EMA strategy forex traders use. However, traders should always test different time intervals, percentages, and forex pairs to know how they can best apply the envelope strategy.

Pros and cons of Moving average envelopes strategy

Pros:

  • It is easier to enter and exit the market
  • It can be profitable.

Cons:

  • Percentages may be required to be changed daily depending on market volatility

Moving Average Ribbon Trading Strategy

The ribbon strategy is the best moving average strategy forex traders apply in their trading. This is because the method can formulate basic forex strategies depending on the slow transition of the trend change. Another thing is that it can be used in both upward and downward trends.

Normally, the ribbon is created by eight to fifteen EMAs, usually plotted on one chart. The information is then used to indicate the trend direction and strength.

Pros and Cons of Moving Average Ribbon Strategy

Pros:

  • There are low-risk trade entries
  • It is highly profitable

Cons:

  • Traders must have a good knowledge of choosing crossovers.

Moving Average Convergence Divergence Trading Strategy

This is another moving average strategy forex traders take advantage of. The strategy displays the difference between 2 EMAs, the 26-period EMA and 12-period EMA. MACD is usually used for momentum trading, but it can also show market trends and direction.

Pros and Cons of MACD Strategy

Pros:

  • Several trading strategies can be created using MACD

Cons:

  • One must have a deep understanding of how this strategy works

How Do I Start With Crossover Moving Average Strategies?

Many traders use the moving average forex trading strategy to analyze the market. If you are interested in learning and using this strategy, you must first start opening an account. This will only take you 5 minutes.

From there, select what you will trade, for example, forex pairs, stocks, commodities, etc. After that, pick one moving average strategy, including indicators that will guide you during your trade. Lastly, apply risk management skills.

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Frequently Asked Questions About Crossover Moving Average Trading Strategies

  • Are crossover moving average strategies profitable?

    The moving average trading strategy can be very profitable if you understand what you are doing

  • When should I take profits when using forex moving average?

    This usually depends on the moving average strategy you are using, but if you notice the market is going against your trades, you can close the position.