Brandon Wendell, CMT
Brandon Wendell
Continuing on my article from a few weeks ago, I wanted to show more examples of how moving averages can assist you in trading decisions. As a successful trader and former graduate of Online Trading Academy, I also value price above any other indicator. But I do use some indicators such as moving averages (MA) in order to improve my chances for success.
Using the averages can allow you to see if prices are too high or low on a relative basis. I mentioned that price is elastic. It will stretch away from the average and then snap back to it. This can be extremely useful as an odds enhancer.
When price is approaching a demand zone in an uptrend, the highest probable opportunity is to buy. If price is also bouncing from a moving average at the same time, then there is an increased chance for success as the MA will work as a bit of support.
Many traders struggle when the zone is wide, there may be a lot of risk in buying at the proximal line of that demand. Your entry could be far from your stop price. If there is a MA inside of the zone, you may be able to lower your risk and increase your probabilities buy buying on the touch of that average. Just do not try to buy a bounce of a moving average without a demand zone!
When you are in a long position, you would want to exit the trade at a supply zone. One thing to look for would be the location of price versus the MA when you are at supply. If price has accelerated away from the average, then there is a higher probability that the supply will hold as price will want to snap back to the MA.
Similar strategies will work for prices and moving averages in a downtrend. The important thing to remember is that price determines your entries and exits. Indicators such as moving averages simply serve to assist your trading decisions and should not dictate the decisions themselves.
Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.
Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
USD/JPY goes on a roller-coaster ride prompted by geopolitical risk
USD/JPY whipsaws lower and then higher on alternating risk-on risk-off caused by Middle East tensions. Governor Ueda talks about defending the Yen from further weakness and currency-induced imported inflation. USD/JPY price chart shows bearish Hanging Man forming, boding ill for future price action.
Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
Bitcoin price shows no signs of directional bias while it holds above $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research.
Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.
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