Strategy on the sma indicator
A simple moving average is one of the most effective technical analysis tools, with the help of which most traders determine both the direction of the trend and the entry points into the market.
It is the moving average that is one of the oldest indicators of technical analysis and is used on almost all possible exchanges.
Naturally, sma as a separate tool cannot show the efficiency that a trader is supposed to get from it.
The fact is that despite the versatility of SMA, this tool is not able to cover all the subtleties of market volatility, so a strategy on the sma indicator with the use of additional filters is the optimal solution.
The strategy based on the SMA indicator, which we wanted to offer for your review, combines both SMA and trend determination, as well as money supply and volume, which reinforces one or another price action. You will probably immediately object that there is no volume in the Forex market!
You are partly right, but no one has canceled the tick volume, which is also very informative for currency speculators. The strategy itself can be applied to any currency pair, but SMA-based tactics are designed for medium-term traders, since all trading is carried out on the daily chart.
The choice of such a high time frame for the strategy is explained by less market noise, which is simply necessary for trend following strategies.
Transferring the sma strategy to the chart
To build a strategy on the chart in almost any trading platform, apply 2 SMA indicators with a period of 5 and 14 with different colors, as well as standard Money Flow Index volume indicators with a period of 9 and the Volume indicator with default settings.
If you prefer to trade through the time-tested trading platform Meta Trader 4, then we have prepared a special template especially for you, which is freely downloadable at the end of the article. In order to install the template into the platform, go to the file menu of the trading terminal and open the “Data Catalog”.
Having gained access to the system files directory, find a folder called Template and drop the downloaded template into it. After you close the root directory of the terminal, go directly to the platform and make an update in the navigator panel.
After updating the terminal, open the daily chart of any currency pair and right-click on it to call up a special menu and go to the templates column. In the list that appears, select “Strategy on the SMA indicator”.
Trading signals
When using a strategy, it is very important to wait until the candle closes, because if the situation changes by the end of the day, the signal may be canceled, and the loss will naturally be significant on this time frame.
Signal to buy:
1) The market is changing from a downward trend to an upward one, namely the SMA with a period of 5 crosses the SMA with a period of 14 from the bottom up!
2) At the moment of crossing the SMA, the Money Flow Index should either be above level 50 or cross it from bottom to top.
3) The Volume indicator shows the increase in tick volume compared to the previous candle.
When entering the market, it is very important to limit risks, namely, set a stop order at the minimum of a signal candle or at a local minimum.
The choice of setting a stop order depends on the market situation. Exit from the market occurs when the SMA crosses back or the price has passed two distances of the stop order. Example:
Signal to sell:
1) The market is changing from an upward trend to a downward one, namely the SMA with a period of 5 crosses the SMA with a period of 14 from top to bottom.
2) At the moment of crossing the SMA Money Flow Index must be above the level of 50, or cross it from top to bottom.
3) The Volume indicator shows the increase in tick volume compared to the previous candle.
We limit losses using a stop order either at a local maximum or at the maximum of a signal candle.
Exit from the market occurs when the moving averages cross back. Example:
In conclusion, it is worth noting that the considered strategy on the sma indicator in this article has a wide range of filters that allow you to reduce the number of false signals in the flat , and the ratio of potential profits to losses is much more positive and complies with all the laws of money management.
Download SMA template