Moving-average trend following
5 lessons
Progress is saved in this browser only.
- 5.1 What a moving average is ✓ Completed
A moving average is the average closing price of the last few candles, redrawn after every candle. It smooths out the noise, but it always runs behind price. The period and the type (simple or exponential) decide how far behind.
- 5.2 Moving averages as trend filters ✓ Completed
The 200-period moving average on D1 is a simple filter. Price above a rising 200 MA means you only look for buys; price below a falling one means you only look for sells. When the line is flat, the filter tells you little.
- 5.3 The EMA pullback setup ✓ Completed
In a trend, price moves in steps, with pullbacks between them. The EMA pullback setup waits for price to fall back to the EMA 20 or EMA 50, then enters on a candle that turns back with the trend, with the stop below the pullback and the target at twice the risk. The worked example shows the same pullback giving one loss, then one win.
- 5.4 Crossovers ✓ Completed
When a faster moving average crosses a slower one, the average direction of price has changed. The MA 20 / MA 50 cross catches big trends, but always late, and in a sideways market it loses again and again.
- 5.5 When it fails ✓ Completed
Moving-average methods need a trend. In a range they get whipsawed, and tuning the period until the past looks perfect only fits the noise. Real losing EURUSD trades show both, then you start the Yellow belt mission.