The purpose of this article is to present traders across the world an alternative view on trading strategies that rely on Moving Averages cross. This is an alternative opinion on the main problem of traders losing day after day without seeing the core of the problem. The main point is to demonstrate that if a trader wants to achieve different results then he has to do things differently. Most of you are not going to like what I am about to say, but that is harsh reality of trading markets.
I know a lot of you are using the most popular indicator in the Market (Moving Average). What you do not realize is that is that MA is the #1 loser in the market. Don’t get me wrong, all indicators are losers, but MA is the leader.
Here is the bottom line.
Indicators are not really the problem. It is the instruction that comes with them and people that use them is the problem.
Let’s take for example MA.
This is by far the most abused indicator in the world. It has lost so much money it should have been illegal to use it. Incidentally, no one seems to realize that. Most trading systems in the market follow the wisdom of the MA crossing strategy. 90% of trading systems have some type of MA crossing scheme in it. Most indicators (MACD, Stoch, ADX, CCI) are build around that concept. That is why all indicators or EA (automated trading system) in general are garbage. Yes, I said it. They are all garbage.
What is the reason for MA cross failure? When looking at MA or any indicators based on MA one needs to understand that price does not care where your moving average is in relation to current price. Market does not care where moving average is pointing or if your indicator is overbought or oversold. MA cross happens too late for an entry and usually when you see the cross and ready to put on a trade the price will go the opposite direction. Tadah! Not again. And you will wander why? You did follow your trading plan as you were taught but there was another loss. Frustration? No, it is more than that.
Having said all that, where do a wanna be forex trader should turn for help? The truth is there is no one that can help you because the answer would be too simple for you to accept and follow. No one can help you except for yourself.
Let me share how I do it:
I trade against everything that I have learned in forex trading classes. I trade against everything the books, the technical gurus, the TV, the market analysis, the news, even the TREND. Yes, I trade against the trend. So when I talk about trading most traders will stay away from what I am saying because it makes no sense to them. Others will hate me for making money trading against all the rules that 95% of traders follow. But if you want to get results different from 95% of traders you have to do things differently.
I am going to share what I do and get some stones and mud thrown at me in the process. It should be fun to watch and read the comments I will be getting. So sit back and relax as I am going to unleash my portion of truth for you.
Here is how I trade.
I only Buy Low and Sell High using my naked eye and simple support and resistance levels. I DO NOT USE MA CROSSING
Bellow is a summary of what I do to prepare for a trade:
(and yes, I do trade without indicators )
- I don’t do any analysis on weekends or days before. When I open my chart I look at a Daily Time Frame. I am not too concern about all these technical analysis. They are too confusing and too boring for me to be wasting my time on. As you may already know, most of your trades are always ending up in the wrong side. So the forex market itself does not follow technical analysis when it comes to taking my money so why should I?
- I determine the intermediate term trend with the H4 and H1 to see where the price is in relation to past price action. This is easy to do with your naked eye. No need for expensive indicator. If you are addicted to indicators then do like the others are doing. Drop a 200 EMA on your charts and say to yourself if the price is above the 200 EMA, the trend is up and if the price is below it the trend is down. Oh, and don’t forget to note where the MA is pointing.
- I look at where the price is located in relation the highest point in the chart and the lowest point. Or for new guy, this means the highest the price has been before returning back down and the lowest the price has been before returning back up. They are also called swings. You can do all this with your naked eye.
- I am waiting for the price to reach my levels to take the trade.
- I do use 60M and 5M to spot true support and true resistance. All my entries are on M5 chart, except for times when I apply specific strategies on M1 chart.
- I only risk less than 2% of my account on any trade. Almost all of my stops are 10 pips or 10 ticks.
- I follow my stop loss rules and let the market do its job.
And yes, sometimes I do trade even without all this stuff described above. Just be there in the right time and with right order. Sometimes I am lucky to reach my day target in first 5-10 minutes of session opening. This does not happen everyday, but this happens pretty often to mention it. With no indicators at all.