Now as an added measure to ensure you only trade with the main trend, the SMA can be used a further filter. This ensures you take trades only based on the significant or main trend which SMA gives you an indication of. After the faster 10 SMA crosses the slower SMA 20 look for these reversal candlesticks to enter your trade For Selling, look for bearish reversal candlesticks and place sell stop order 5 pips under the low of that bearish reversal candlestick for buying, look for bullish reversal candlesticks and place your buy stop or buy stop order 5 pips above the high of that bullish reversal candlestick.

Place your stop loss above 5 pips above the high of the entry reversal candlestick if you are selling and 5 pips below the low of the bullish reversal candlestick if you are buying. Prev Article Next Article. While the two styles are very different, the simple moving average can be used to complement both. For example, a short-term trader that trades using technical analysis may be interested in finding out whether a security is trending up or down over a day period.

Simple Moving Average – Top 3 Trading Strategies

This trader could analyse the day SMA to determine the trend. In contrast, a long-term investor that generally uses fundamental analysis might be more interested in buying an upward-trending security after a pullback to the day SMA. This investor could use the SMA to find out how to calculate an attractive entry point. There are many different trend-based strategies involving the simple moving average. Two of the most popular signals that traders look for are bullish crossovers and bearish crossovers.

This action signals that the downtrend or correction is over and a possible uptrend is starting. A bullish crossover can be used as a signal to enter a long trade. During trending markets, this signal can be quite reliable. However, during choppy or sideways markets, the indicator can be less reliable in measuring market fluctuations. Bullish crossovers are less important when the long-term trend is down. This action signals that the uptrend is over and the trend may now be downward.

A bearish crossover can be used as a signal to exit a long position or, alternatively, enter a short position. During choppy or sideways markets, a bearish crossover is less meaningful. Another popular strategy with the SMA is the moving-average crossover. A moving average crossover is often referred to as a golden cross or death cross.

This is a bullish signal and indicates that the price of the security may continue rising. A golden cross can be used as a trading signal to enter a long trade. The reverse of the golden cross is a bearish indicator known as the death cross. This is a bearish signal and indicates that the price of the security may continue falling. A death cross may be used as an exit strategy.

Seamlessly open and close trades, track your progress and set up alerts. Our simple moving average indicator is automatically calculated for your ease of trading, along with the exponential moving average.

WHY MOVING AVERAGES ARE USEFUL

These work best when combined with other popular trend indicators, such as Bollinger Bands, the relative strength index RSI and the stochastic oscillator. We offer a variety of chart displays to show your data clearly. The simple moving average is a popular tool that can benefit both short-term traders and long-term investors.

It is drawn as a single line on a chart and is helpful in identifying trends.

Related Topics

The benefit of the SMA is that it quickly enables a trader or investor to determine whether a security is trending up or down. CMC Markets is an execution-only service provider. The material whether or not it states any opinions is for general information purposes only, and does not take into account your personal circumstances or objectives.

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Nothing in this material is or should be considered to be financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

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Do you offer a demo account? How can I switch accounts? CFD login. Log in. Home Learn Trading guides Simple moving average. Simple moving average The simple moving average SMA is a popular technical analysis tool.