Swing Trading the 200 Moving Average

Swing Trading the 200 Moving Average

Unfortunately I don’t practice what I preach, possibly because trading Indices helps me get a feel for what’s going on in the markets overall.

But, based on my experience, ignoring Indices completely and just swing trading currencies with wide stops and small positions is the most profitable way for retail traders like ourselves to make money in the markets.

Currencies may appear more volatile than stock markets, but when they trend they do so uniformly, climbing up a specific moving average with runs of 300 points or more over a relatively short time.

Depending on the pair, buying at the 200 MA on the hourly or 4 hourly time frame with stops beneath the previous swing low (and vice versa for shorts) proves itself time and time again as a sure fire way to make money. Yes, sometimes the pattern fails, and you’ve also got to decide whether price is in a range or if it’s definitely trending. It does take some bottle to do, and you can see 100 profit turn into -100 very quickly with little warning, but once the trade takes off it will generally deliver.

This isn’t to say you can’t do the same thing on Indices, but most of us spend so much time watching Indices and hearing/reading market moving news that we start making subconscious opinions as to where price should be as opposed to purely relying on the chart.

The most common MA related price pattern you’ll see in an up trending currency will normally start with a down trend with the 200 MA as resistance, followed by a bottom and a period of consolidation just beneath the 200 MA.

Eventually price will break above it. It can rally quite a long way from here, but eventually it will come down to retest the 4 hourly 200 MA. If you are confident of the trend change now would be a good time to buy, otherwise, it’s best to wait for the 2nd test of the 200 MA. The 2nd test will normally break below the 200 MA, but you want to wait for it to break back above before buying.

Here’s a few examples of the 4 hourly 200 MA in action, they are literally just random trending charts I’ve just scanned through, but I’m sure there’s better examples out there. The red circles are the buy/sell areas.

CAD:CHF – Sell the 2nd test of the 200 MA, cover or trail at divergence:

EUR:JPY – Buy the confirmed 2nd test of the 200 MA:

USD:CAD – On the way down sell the 2nd Test of the 200 MA, on the way up buy the 1st Test of the 200 MA….. If you look at the Hourly time frame you’ll see why there was no need to wait for a 2nd test:

Finally, just to avoid Hindsight, here’s a potential one that’s not quite ready yet…. To buy the next confirmed break above the 200 on MA in EUR:CAD:

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  • EUR CAD Above 4 Hourly 200 MA For Swing Long; 22nd Nov 2012
    Posted at 23:49h, 21 November

    […] Above 4 Hourly 200 MA For Swing Long; 22nd Nov 2012 Posted in: CAD, EUR By: RS2OOOFollowing on from this post where discussion surrounded trading the 4 Hourly 200 MA, I used EUR:CAD as an example of a potential […]