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Not just because its simplicity, but it actually shows you average price of a stock, and even shows the direction of the trend. You might have seen some business news channels get excited when price crosses the 200 period moving average, Because it can indicate a start of a new trend.
But like i said in my Ichimoku indicator video, the indicator that are easy to understand, can be difficult when it comes to executing trades with it. If stock and forex trading was easy, everyone would have been a millionaire.
The moving average crossover strategy is simple, but there are few challenges you may encounter when executing trades with it. Lets see what are they, and how to avoid them, once we actually understand, how to use the moving average crossover strategy properly. Like always, In my next video, I will test this strategy 100 times, to find its real win rate. I’ve already tested many other indicators 100 times, to show their real win rates. If you have not watched those videos, go watch now. And subscribe to the Trading Rush Channel, to see this moving average strategy, and many other strategy tested 100 times. After all, you don’t want to risk your money on something that doesn’t even work.
There are multiple ways to set the stop loss in this strategy. Once you enter a long trade, You can set the stop loss, below the Swing low. Or set it just below the Crossover of these moving averages. Remember to give the price, enough room to wiggle around, otherwise your stop loss can get hit. In a long setup, If you set your stop loss below the swing low, there is low probability of price hitting your stop loss.
Okay! Now lets talk about the profit target. Something every trader loves. But where should we set our profit target in this moving average strategy? Just like the stop loss, there are different ways to set profit targets. Some use a fixed target. For example, some will set their profit target 2 times more than the risk. This way, they will only take 200 percent profit. Nothing more, nothing less. This is a good strategy to get consistent profit.
On the other hand, some will take profit, and exit the trade, when another moving average crossover is generated. This way, they have a chance to stay in a long trend for a long time. This strategy can generate great risk to reward ratio, but market doesn’t make big moves every-time. These both methods have their advantages and disadvantages. It really comes down to the traders personality. If you can stare at the screen for a long time, and keep adjusting your trade, go with the second method. If you cannot stare at the screen and see your profit loss changing, go with the first method. That way you don’t have to sit to adjust the trade. Just set your stop loss and profit target, and go for a walk, or maybe look for another trade. Just remember to cancel your stop loss, when your profit target order hits, and vice versa.
That’s all there is to it.
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