Thursday, December 13, 2007

Strategy to Hit the Forex Market

Forex trading can be tough if you do not know what you are doing. The Simple Moving Average (SMA) is an extension of the trend line concept can very helpful, but of course you have to search another strategy to enrich your knowledge about forex. The SMA is plotted on a graph by the charting program of the forex market data. The SMA takes the average of the close price of a given number of the last few periods. Any number of periods can be selected. You can have a SMA 5 or an SMA 20. An SMA 5 will take an average of the previous 5 close prices on the chart and will plot it on the chart along side the other price data. Each bar will use the previous 5 bars worth of data to calculate a point and plot it on the graph.

If the SMA is generated using a large number of periods (like an SMA 50 or SMA 75), you could interpret it similarly to the trend line. But if you select "faster" SMA's (like SMA5 or SMA20), you need to use a different strategy.

the strategy that using the SMA. It is called the SMA Crossover Method. The SMA is one of the most commonly used indicators and can be found on almost any charting package. When you plot the SMA, you will be able to select a line color to plot it. Make sure to use a different color than the actual prices on the chart.

Step 1: Plot an SMA5 using blue (or any color you like).

Step 2: Plot an SMA20 using red (or any color that is different than step one's color).

With this plotted SMAs on the chart. You also have two signals.

Buy Signal: When the SMA5 Crosses the SMA20 moving upward.

Sell Signal: When the SMA5 Crosses the SMA20 moving downward.

The beauty of this method is that the price of the currency pair cannot go up significantly without triggering the buy signal.

This was a very simple and practical indicator that should really improve your trading results as you implement the strategy outlined above. Good luck trading.