When it comes to trading, there’s no magic wand, but using moving averages can definitely lay the groundwork for a straightforward yet effective trading strategy.
Forex traders often gravitate toward these kinds of approaches. You can craft numerous trading systems based on averages, but keep in mind that sometimes, simpler is better.
The Triple Moving Averages Explained
As I mentioned earlier, the three EMAs we’ll be utilizing come with different time periods:
- 9-period EMA
- 21-period EMA
- 55-period EMA
The 55 EMA serves as our longer-term trend direction indicator:
- If the 55 EMA is below both the 9 and 21 EMAs, we’re looking at an upward trend.
- Conversely, if the 55 EMA is above the two shorter-term averages, we're in a downward trend.
Now let’s talk about the 21 EMA, which reflects medium-term trends:
- For an uptrend, we want the 21 EMA to be below the 9 EMA and above the 55 EMA.
- For a downtrend, it should be above the 9 EMA and below the 55 EMA.
Finally, we have the 9-period EMA, which tends to cross over and under the 21 EMA more frequently than it does the 55 EMA:
- When the 9 EMA crosses over the 21 while sitting above the 55, that's your cue for a buy trade.
- If it crosses below the 21 while already below the 55, that's a signal for a sell trade.
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