In this article, we will learn how to use a crossover forex trading strategy using the MA indicator.
Almost all traders must know how to explore, interpret and confirm the MA crossover strategy but let’s discuss the use of this strategy when prices are in sideways conditions.
The depiction of strategies using charts will make it easier for you to understand the MA crossover strategy because this strategy can generate signals that can be confirmed by various other types of indicators.
The MA crossover strategy is often used by traders to estimate the momentum of price changes in the market.
When the MA indicator gives a predetermined signal, the trader will try to interpret the sign that will appear when there is a change in price movements with respect to momentum or change in direction of price movements.
But as we mentioned, the crossover strategy is relatively common, and this strategy is unlikely to work well without confirmation from other tools.
The signal generated by the MA crossover can be useful when the market starts moving in trend but when the market has formed a trend, the MA crossover strategy will give a less significant signal than at the beginning of the market movement.
Let’s analyze the basic MA crossover strategy:
For example, we will use the simple moving average indicator 13 which moves up above the 100 SMA, or when the EMA (exponential moving average) 14 falls and moves below the 50 SMA which makes the indicator moving average crossover.
In this example MA crossover will give a signal that is not static and must be analyzed by the trader manually. This flexibility makes MA crossover much easier to adapt to changes in market conditions and market trends so that the MA indicator can be very useful as a trading option.
The crossover MA strategy can also be useful when prices move around even though moving averages sometimes produce less firm signals and relatively low volatility.
Many traders choose to use a simple moving average for a slow MA indicator, and an exponential moving average for a fast MA indicator but this is not a necessity, depending on the trader’s preferences related to the sensitivity of the price movement indicator where the EMA indicator can be used or discarded altogether.
Moving Average Crossover when the price is sideways
In the 1 hour chart on the AUD / USD pair, we see that for almost three days the price is between the 0.9319 and 0.9338 areas, where the MA 13 indicator is illustrated in red below the yellow MA 100 indicator. Prices move ranging and fluctuate between support and resistance levels (shown as gray area in the chart) where the 13 MA indicator is in the consolidation area. MA is not a price action indicator that will give a signal for the future, so it takes one effort from the price to make a breakout move.
On April 4, around 3:00 a.m., the price seemed to move suddenly soaring, which quickly caused the 13 SMA to move spikes up and finally rose above the 100 yellow SMA, and the crossover occurred, and after the price continued to move strong rally, finally reached the level of 0.9179.
In this scenario, the crossover is strengthened by the long duration of the consolidation pattern because the price will not continue to move quietly for a prolonged period, the crossover finally creates a very reliable signal for price movements. Finally, long positions become an option when the MA indicator crossover. How ?