Because the currency market often
experiences short lived intraday
trends, perhaps the most efficient way
to trade them is through swing
Swing traders don’t attempt to
predict the duration of a trend, or
to hold a bullish or bearish bias.
The premise of this trading style is
that one can capitalize on both
trending and retracement phases of
assumption is that
all upward price
in a period of
To successfully swing trade in
the currency market, it is
necessary to have a relatively
quick trigger for entry and
Moving average crossovers are often
the optimal method of timing entry
and exit. This is because, a crossover
is capable of marking the end of one
trend and the beginning of another.
If this trading style seems almost
too good to be true…your
intuitions are correct. By looking
at a chart, a trader would almost
never lose if he/she accepted
moving average crossover signals to
enter and exit a trade.
The problem is that most traders
are not sufficiently capitalized to
hold positions that will eventually
Traders can compensate a Moving
Average Crossover system by
placing appropriate stops and
using a trend confirming indicator
such as MACD or Stochastics.
Trading on Moving Average
Crossovers alone will result in false
signals. Filtering signals with a
confirmation indicator will alleviate
some of this.
A rule of thumb for stop placement in
swing trading is at the relative high or
low of the previous two price bars. If
the relative high or low is not beyond
your entry, use the high or low of the
next feasible bar.
Stops should be trailed. Each price
bar that goes in your favor the stop
should be placed just above the high
or low of the previous bar.