Forex technical analysis indicators: cross-trading using moving averages.
As of now, you already know how to use the moving average to determine the trend direction, and you should also know that the moving average can help you decide when the trend will end and will turn.
All you need to do is insert a few moving averages on your technical graph and wait for the intersection of moving averages to appear. If one moving average penetrates another, it may send a signal that the current trend will turn, which will provide investors with a good opportunity to enter the market.
Let us take another look at the USD/JPY daily chart to further explain how to trade using the moving average crossover.
From April to July, USD/JPY is in a perfect upward trend. The exchange rate peaked at 124.00 and then slowly declined. In mid-July, we saw 10 SMA under 20 SMA.
What happened next?
The perfect downtrend!
If you choose to go short when the moving average crosses, your profit will reach almost 1,000 points.
Of course, not every transaction can provide us with a profit of 1,000 points, and its profit may be 100 points, or even only 10 points.
You may also lose money, which means you must consider where to set a stop loss or when a profit is taken. You can’t trade without plan.
Some traders’ approach is that when a new moving average cross is formed, or when the price fluctuates in the opposite direction of the profit target point set before, they choose to close the position.
The reason is that you don’t know when the next moving average crossover will occur. If you wait too long, this may damage your trade.
One thing to note when using the moving average crossing system is that although they play a significant role in an environment with large volatility or obvious trends, it does not work as well when prices are in range fluctuations.
In the course of your trading, you will encounter countless moving average crossing signals, and before you catch a trend again, you may end in failure many times.