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Chapter 19, Part II. Indicators’ Application for Estimating of Trending Market.Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 21, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Triple Moving Average

    This is a relatively old method of identification of a trending market. For that purpose you should use three MAs with different periods: short-term, medium-term and long-term. For short-term usually 5-8 periods are used, medium-term 17-21 period, long-term 50-65 period. Anyway you have to test different periods before adding them in your trading arsenal. This is just an example, how they could be applied.

    Chart #2 | EUR/USD 5-min chart and 7;25;55 SMA [​IMG]

    On chart #2 we see, how three different MAs compressed with each other on top and then have started to spread out, coming farther from each other. When the short term MA (in our case this is 7-period) moves below medium term MA (25) and the medium term, in turn, moves below the long-term (55) and they start to fan out – this is an indication of down trend.

    Also, take a look how the trend holds in the rectangle – although there were some crossings of different MA, we should exit only when the 7-period will move above the 25 period, and the 25 will move above the 55-period MA – just like in the circle on the bottom of chart #2. The opposite is true for uptrend:

    Chart #3 | EUR/USD 5-min chart and 7;25;55 SMA [​IMG]

    On chart #3 is a continuation of chart #2 – an upward trend has started right in the circle, as on bottom of chart #2 and it also shown on chart #3 – see, the MAs contracted into a tight node and then start to fan out – 7 period above 25 and 25-period above 55. The trend has finished when we see opposite crossing and so on.

    Pipruit: Well, that reminds me some trading methods from the MA application chapter. As I remember, applying MA’s leads to lagging and whipsaw price action that could turn to losses in a ranging environment – something like on the chart #3 to the right from “exit” point. Although here we can exit dry from the water and will not take a loss on whipsaw action, in other cases it easily could happen.

    Commander in Pips: Yes, you’re right. Any method has its own disadvantages. But here we have to offer you different approaches, including this old one with MAs. May be somebody will find it useful as an additional tool in his/her trading system.

    Pipruit: I see. What’s next?

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