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Chapter 11, Part VI. Trading moving averages crossover. Page 3

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 18, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    But, as we already know – there is nothing perfect on market, otherwise everybody makes money all the time. Here is the fly in the ointment – periods of market consolidations can lead to losses. Because your trades fall into the whipsaw price action (grey rectangles). See – you have to follow strategy rules strictly, so you have to buy and sell, and buy again. Although losses are not so crucial – still these trades are not profitable either. On chart #1 we have a mostly trending market with short periods of consolidation and whipsaw losses. But you can’t know it ahead of time! What if market will be mostly a ranging market, rather than trending market?

    As usual, before jumping aboard, you should estimate where you will place your stop loss order and apply strict rules of money management that allow you to stay in trading despite consecutive losses.

    Pipruit: I see. Also, I have to estimate what periods to apply to the MAs first…​
    Commander in Pips: Absolutely. As you understand this strategy theoretically assumes that you have a position every time. When MAs cross each other, you just shift position to the opposite, but not totally close the previously opened one. You can apply stop loss orders additionally to each position. Let’s make some conclusion about this strategy:

    1. This strategy will give you excellent results on a volatile and trending market, where periods of consolidation are not so long-term. Like on our chart;

    2. If market is ranging during most of the trading time – more probable it is that this strategy will give you much shallower results, or even a net loss;

    3. This tells us, that you can catch a lot of painful crossovers before you really will be able to ride the trend.

    4. This strategy demands many tools such as – applying of stop loss, additional filters for entering into trades, some signal confirmations and other tools, that allow you to reduce losses and filter out whipsaw action, at least partially. Also this strategy demands preliminary investigation of different pairs to choose historically the most trending from them, and optimization of the MAs periods that will work best.

    P.S. This lesson was written by Sive Morten, who has been working for a large European Bank since April of 2000, and is currently a supervisor of the bank's risk assessment department. Sive's knowledge of forex market and banking industry is vast and quite complete. If you have any specific questions about forex, banking industry, or any other financial instruments, please post them on the next page and Sive should answer soon.

    Note: FPA ranks are earned in the battles against scam, not in the classroom.
    #1 Sive Morten, Dec 18, 2013
    Lasted edited by : Mar 12, 2016
    Hamza Samiullah and fran alvarez like this.
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