The 20 moving averages (MA) forex strategy is a popular and effective trading tool used by many traders. It is a simple yet powerful strategy that can help traders identify potential trading opportunities and manage their risk. In this article, we will explain how to use the 20 moving averages forex strategy to trade the forex market.
What is a Moving Average?
A moving average is a technical indicator that calculates the average price of an asset over a specified period of time. Moving averages are used by traders to identify trends in the market and to determine support and resistance levels. A moving average is calculated by taking the sum of the closing prices over a specific period and dividing it by the number of periods.
The 20 Moving Averages Forex Strategy
The 20 moving averages forex strategy is based on the 20-period moving average and its relationship to the price action. The strategy is simple to understand and can be used on any currency pair and on any time frame. The 20 moving averages forex strategy can be broken down into three steps:
Step 1: Identify the Trend
The first step in using the 20 moving averages forex strategy is to identify the trend. The trend is the direction in which the market is moving, either up or down. To identify the trend, traders can use the 20-period moving average. If the price is trading above the 20-period moving average, the trend is considered to be up. If the price is trading below the 20-period moving average, the trend is considered to be down.
Step 2: Wait for a Pullback
Once the trend has been identified, the next step is to wait for a pullback. A pullback is a temporary reversal in the direction of the trend. Traders can use the 20-period moving average as a guide to identify potential pullback areas. If the price is trading above the 20-period moving average, traders can look for a pullback to the moving average as a potential buying opportunity. If the price is trading below the 20-period moving average, traders can look for a pullback to the moving average as a potential selling opportunity.
Step 3: Enter the Trade
After identifying the trend and waiting for a pullback, the final step is to enter the trade. Traders can enter the trade when the price bounces off the 20-period moving average and resumes its trend. If the trend is up, traders can enter a long position when the price bounces off the 20-period moving average and begins to move higher. If the trend is down, traders can enter a short position when the price bounces off the 20-period moving average and begins to move lower.
Managing Risk
Managing risk is an important part of any trading strategy. Traders can use stop loss orders to limit their risk and protect their capital. A stop loss order is an order placed with a broker to sell or buy an asset when it reaches a certain price. Traders can use a stop loss order to exit the trade if the price moves against them.
Conclusion
The 20 moving averages forex strategy is a simple yet effective trading tool that can help traders identify potential trading opportunities and manage their risk. Traders can use the 20-period moving average to identify the trend and wait for a pullback to enter the trade. Managing risk is an important part of the strategy, and traders can use stop loss orders to protect their capital. With practice and patience, traders can use the 20 moving averages forex strategy to become successful in the forex market.
