A 2 line moving average is less complicated than using 3 moving averages. So we will start by looking at how the 2 moving average works and then we will look at how to use 3 moving averages.
To get any moving average system to work we need to use moving averages of different lengths. We will go through some of the most common combinations and lengths of moving averages. A trader can use any length of moving average as long as 1 is shorter than the other.
For a 2 line moving average system the most common set-ups are either a 5/20 bar moving average or a 10/50 bar moving average. Our 2 moving average system works when the smaller moving average crosses the bigger moving average.
We have a buying signal when the shorter time scale moves from below and crosses above the larger moving average. Our sell signal happens when the the shorter moving average moves from above to below the larger moving average.
A 3 line moving average has 3 moving averages of different lengths. The most common combination of moving averages are the 4-9-18. As this is a slightly more complicated system than the 2 line moving average we need to understand what happens in a trend.
When we have a trend our moving averages have a set way of behaving. In an down trend the 4 bar will be at the bottom, the 9 bar moving average will be next and the 18 will be at the top. The reverse is true in an up trend and the 4 is at the top, 9 is in the middle and 18 is at the bottom.
To understand how this system works we must acknowledge that moving averages with a shorter time scales will change direction quicker than moving averages with larger time scales. This quicker movement is used to create an alert signal that happens before our trading signal.
To make money with 3 moving averages we use them to identify changes in market trends. Let us imagine we are in a falling market and our 4 bar moving average turns up and crosses both the 9 and the 18 bar moving average. When this happen we have our alert and we get ready to make a trade. Our buying signal happens when the 9 bar moving average also moves up and crosses the 18 bar moving average.
Imagine we are in a rising market and the market starts to change direction. The 4 bar moving average will start to move downward and as soon as the quickest (4) moving average moves lower and crosses the other two (9 &18) we have our alert signal. We then get our trading signal when the 9 bar moving average follows the 4 and goes lower crossing the 18.
We can also use the alert signal ( 4 crossing the 9 & 18) to help us take our profits. Imagine we are in a rising market and the 4 goes lower and crosses the 9&18 bar moving averages. We can use this to close out our previous trade as well as getting ready for a new trade.
To get any moving average system to work we need to use moving averages of different lengths. We will go through some of the most common combinations and lengths of moving averages. A trader can use any length of moving average as long as 1 is shorter than the other.
For a 2 line moving average system the most common set-ups are either a 5/20 bar moving average or a 10/50 bar moving average. Our 2 moving average system works when the smaller moving average crosses the bigger moving average.
We have a buying signal when the shorter time scale moves from below and crosses above the larger moving average. Our sell signal happens when the the shorter moving average moves from above to below the larger moving average.
A 3 line moving average has 3 moving averages of different lengths. The most common combination of moving averages are the 4-9-18. As this is a slightly more complicated system than the 2 line moving average we need to understand what happens in a trend.
When we have a trend our moving averages have a set way of behaving. In an down trend the 4 bar will be at the bottom, the 9 bar moving average will be next and the 18 will be at the top. The reverse is true in an up trend and the 4 is at the top, 9 is in the middle and 18 is at the bottom.
To understand how this system works we must acknowledge that moving averages with a shorter time scales will change direction quicker than moving averages with larger time scales. This quicker movement is used to create an alert signal that happens before our trading signal.
To make money with 3 moving averages we use them to identify changes in market trends. Let us imagine we are in a falling market and our 4 bar moving average turns up and crosses both the 9 and the 18 bar moving average. When this happen we have our alert and we get ready to make a trade. Our buying signal happens when the 9 bar moving average also moves up and crosses the 18 bar moving average.
Imagine we are in a rising market and the market starts to change direction. The 4 bar moving average will start to move downward and as soon as the quickest (4) moving average moves lower and crosses the other two (9 &18) we have our alert signal. We then get our trading signal when the 9 bar moving average follows the 4 and goes lower crossing the 18.
We can also use the alert signal ( 4 crossing the 9 & 18) to help us take our profits. Imagine we are in a rising market and the 4 goes lower and crosses the 9&18 bar moving averages. We can use this to close out our previous trade as well as getting ready for a new trade.
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