In this video, Chris takes a look at one of the most common Forex trading systems, moving average crossover systems. This system has been in use since the turn of the 20th century at the very least, and has weathered the test of time. It is statistically profitable, but the biggest problem comes when traders are not patient enough to allow it to work.
The system itself comprises on at least 2 moving averages plotted on a chart. It is a trend following system, so therefore you need to have a trend in place. There are ways to determine whether or not it is a trend worth dealing with, as shown by the slope of the moving averages. They have to be incongruence with each other, showing that both slow and long-term momentum is moving in the same direction. When they are not, it shows that we are simply in a very choppy environment.
The system is a lagging system. In other words, the moving averages are lagging indicators, see you don’t get into the trade at the very beginning of the move. However, you do tend to capture roughly 80% of any particular longer-term trade, while suffering lots of small losses. This is where the psychology of this system comes into play: you have to be able to trust that over the longer term, you will make money. Moving average crossover systems tend to be a real exercise in patience, but for those that can be – profits are possible.
This is a system that normally does better on longer-term charts, and part of the negative publicity that he gets is due to the fact that a lot of short-term traders try to use it. Yes, it can be profitable on this chart as well, but in our experience it tends to do better on longer-term charts. The gains are much more substantial, and you can find yourself in trades the last well over a year once you get the right signal.
In this particular video, we look at 2 different markets that have 2 vastly different attitudes. In the USD/CAD pair, one of the trades actually gained roughly 2900 pips. However, in the EUR/NZD pair, this system was essentially useless. And that’s the point: you have to be able to know when to use a Forex system, and when not to.
Moving Average Crossover Systems video below: