What is the MA Crossover strategy in forex trading?
One of the most popular crossover trading strategies is the MA Crossover trading strategy. This trading strategy is based on moving average lines and their crosses. This strategy can be used for all currency pairs, although there are some differences in its application depending on the currency (e.g., MAs of different periods can be applied to GBP/JPY).
The essence of this trading strategy is to find any two MA lines with different periods. It is suitable for use on the chart timeframe, depending on the currency pair one day, 5 minutes, or 1-minute charts can be used. The general rules of its application are as follows:
In case you have chosen a “5 minutes” timeframe, then you can put a Buy-Sell order when the red line crosses upwards or downwards from the black MA one. In case you have chosen a “1-minute” timeframe, then you can put a Buy-Sell order when the red line crosses upwards or downwards from the green MA one.
To identify any MA lines one can, use a filter or indicator "Trend" in Meta Trader 4. However, you can easily identify them by visual inspection of graph drawings.
This strategy is very easy to trade and does not require special calculations for placing orders. You just need to place your Buy-Sell orders when the lines cross each other. If the trend is upward - buy, if it is downward - sell.
The idea of this strategy is in the fact that in most cases when a second MA line crosses a first one, this means that there is a certain reversal and therefore further price movement will be in the opposite direction. However, when they cross at right angles (90 degrees), then it does not always mean that the trend will reverse. It is better to wait and see what happens next, and only after it identify if this was a true cross or not.
Advantages of MA Crossover trading strategy:
This strategy can be used for beginners as well as professional traders; No need to perform Fibonacci calculations; This strategy does not require any additional indicators; It is easy to use and does not overload the chart with unnecessary information.
Disadvantages of MA Crossover trading strategy:
MA lines do not always reflect the market movement therefore it is better to wait for a true crossover before taking any actions; This strategy is suitable for scalping and intraday trading, but not for long-term trading; This strategy is better used on the D1 and H4 charts.