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The previous lesson we cover the basic principle of generating good profits. We want to have great confidence in our strategy so we will include one more MA. Reason behind is that the second MA will smooth price movement and will reduce the false signals. The faster MA represent smoothed values of price, and slower – represented trend.
Rules for this strategy are:
For long position:
- When fastest 20 period MA crossed 50 period MA and both MAs go upwards.
- The bar where two MAs crossed is called signal bar.
- We go for long (buy), when price breaks the highest value(high)of the signal bar. We place stop 3 or 5 pips below the lowest value(low) of the signal bar. When price starts moving up we move our stop 3 or 5 pips below the lowest value of some following bar.
- We close position, when 20 period crossed 50 period from top to bottom or if price triggers our stop.
For short position:
- When fastest 20 period MA crossed 50 period MA and both MAs go downwards.
- The bar where two MAs crossed is called signal bar.
- We go for short (sell), when price breaks the lowest value(high)of the signal bar. We place stop 3 or 5 pips above the highest value(high) of the signal bar. When price starts moving down we move our stop 3 or 5 pips below the lowest value of some following bar.
- We close position, when 20 period crossed 50 period from bottom to top or if price triggers our stop.
