Why I love the 100 and 200 bar Simple MAs. A look at the GBPUSD
The blue line is the 100 hour Simple MA. The green line is the 200 hour Simple MA. I use the same MAs on 5 minute and daily charts as well and they give the same “unambiguous” clues. That is if the price is above the MA line, it is unambiguously bullish. If the price goes below the MA line it is unambiguously bearish.
The “market” (that is the smart money and even those small traders who want to be like the “smart money”), tends to follow these MA (or so it seems) and as a result, when the price goes above them or below them, the price tends to move away. It may also use the levels as support or resistance levels that traders will trade against when the “market” is unsure of direction.
Why does the market use these MA lines? The reason is smart traders who are focused on risk, use these “borderline” levels because risk can be defined. I call them “borderlines” because the price is bullish above and bearish below . So it is like a borderline where it is one state on one side, and another state on the other). If you sell against a moving average (border)line like 10 and 11 in the chart above, put a stop 10 or so pips above (assume a bearish bias). If the price goes down you have great trade location. If the price goes above, the ”Market” is not doing what it is supposed to do, so GET OUT. Don’t blame yourself. Blame the “market”!
If a trader is able to define risk and accept risk (10 or so pips above – it is up to you but it does not have to be any more than 20 pips), you can diffuse fear and “fear is a traders worst enemy”. Traders need to “steer clear of fear”. Not having fear allows successful traders to be confident of the position and trade more trend type moves.
The 100 bar MA is the trigger the 200 bar is the confirming MA. At 1 the price breaks above the trigger MA and the price moves higher. The target is the 200 hour MA. The market can not confirm the trend by going through and so this creates a borderline to take profit against. If the price goes through the 200, go long as the trend higher is confirmed. The price does not do this and when the price moves below the 100 hour MA at 3, the bias turns negative and the price moves sharply lower. The market bottoms and the price moves back up to 4 where the price breaks through the 100 bar MA and moves up again to the 200 bar confirming MA at 5. It fails again, so the price comes down again and breaks below the 100 bar MA. It corrects and tests the 100 bar MA at 6. The smart money sells against the level (risk is 10-20 pips) and the price moves sharply lower.
The market bottoms again and starts the rebound. At 7 the price moves above the 100 bar MA and this time through the 200 bar confirming moving average finally. This should lead to a further move higher. It does but the rally fizzles out and the price moves back below the MA at 9 and then back above and after trying to use the 200 bar MA as support, the price pushes below the 200 bar MA at 10. Between 11 and 12, the smart money (i.e. the market) can not decide what to do as it awaits Bernake. So it ranges between the 100 MA line and the 200 MA line. The market breaks and bottoms at 13 during Bernanke speach. That fails and the market price moves above the 100 hour MA one last time, races to the 200 hour MA and stops. The week ends inbetween the 100 and 200 bar MA. “In Between the Goal Posts” is what i call it when the price is contained by the 100 and 200 bar MA.
Next week I will use those MA for clues as to market direction. If the price stays above the 100 the bias is bullish but the price has to get through the 200 bar MA to confirm the bullish trend. IF it does, look for increased upside momentum. If it fails to develop that momentum and the price moves back below the 200 bar MA, get out (the market is not doing what it should do! So get out!). If instead the price moves below the 100 bar MA, look for increased bearish sentiment. Successful traders will use other tools like Fibonacci retracements, trendlines, and even 100 and 200 bar MA levels on 5 minute and daily charts (these are my favorites) to target levels as the price trends lower or higher.
I love moving averages – in particular the 100 and 200 bar MA lines. They provide definable, low risk trading opportunities for the smart money.
If you want to subscribe to my daily emailed forex video commentary (4 times a day), send me an email at greg@fxdd.com. I conduct free webinars twice a week on Tuesday and Thursday at 4PM EST. To register and view rebroadcasts go to http://forex.fxdd.com/webinars. You will learn, so you can be aware and be prepared.
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Please tell me about the Red, Yellow & Orange Signs present in the chart. What do they all stand for ???
I’ll wait for your reply.
Thanks !!!
What signs are you referring to? I have the blue line which is the 100 hour MA, the green line which is the 200 hour MA. The bars in the chart represent the price high low range for each hour. The numbers are referred to in the text. I hope this helps Greg
THIS CAN 100 AND 200 MA CAN BE RECOGNIZED FROM THE FULL DAY ,HOW ONE CAN KNOW IT FROM 5MINUTE CHART , IN 5 MINUTES CHAT HOW ONE CAN FIND THIS 100 AND 200 MA ??
I have three charts for the currency pairs I watch. A 5 minute chart, a hourly chart and a daily chart. All have the 100 and 200 simple moving average applied to each. Greg
Hey Greg,
Great stuff, thanks! Quick question…what are the pros and cons of using a Simple Moving Average, as compared to an Exponential Moving Average?
cool story bro
I have just started using the MA for another set of confirmations. I really do appreciate your insight. I am in the GBP to go to 1.5325 at this time. This will give me more power to make the correct choice on killing the trade or letting it ride.
Thank you
Well an Exponential Moving average weighs the most recent data more. So it is thought to be more current. It is faster to the market moves. Some people think that is good and quite frankly if you find it works ok. I don;t know what it comes out to, but I would assume the 100 bar Exponential MA is something like a 80 bar SMA. It is quicker. Is quicker better? I like the pace of the SMA to be honest.
I like to look at 5 minute, 1 hour and 1 day charts looking for clues and I want to use the same MA on each of those charts. I don’t want to change. I don’t want to best fit one for 5, hour and daily. I want easy and consistency. As a result, I use the same for each and apply the same rules with 100 being the trigger, 200 being the confirming. That is it. Now of course the 5 minute chart will give me quicker signal to the hourly but i don’t want it too quick. I like the pace of the 100 SMA on the 5 minute. Not too fast. Not too slow. The 100 hour is a nice intermediate time frame.. That is 4 plus days. The 100 day is watched by the longer term players and I want to know what those traders are focused on.
I look at all three time frames each day to see which levels are “in Play” – that is the price is near the key borderline level. If the 100 hour MA is in play, I believe in it, I trust it. I will look to it for bullish or bearish clues – above bullish, below bearish. Can I apply my own bias to that? SUre. If I am bearish and the price is above the 100 bar MA, I will look for a break to confirm (Remember this example is in a simplistic world where the only tool is the MA – I will use trendlines, horizonatal lines and Fibo Retracement levels so I may have a double top that I might sell against and then use the 100 hour MA as a target or confirmation). Trading is about following the bias (i.e. bullish and bearish) and going to the next target. It is about going from the 100 to the 200 on the 5 minute. To then go through a trendline, maybe a Fibo level next and the 100 hour MA next. If that progression happens and you are looking ahead after each step to the next target, you automatically get the confirmation that the trend is progressing in the direction you want it to go. If the price on a bearish trend goes below the 100 and 200 bar on thr 5 minute chart, makes it through the 100 hour MA, but cannot get through the 200 hour MA. The price goes to the 200 hour MA and stops on a dime. Guess what? That target could not be breached. Even though the bias is bearish, there is a bullishsignal. Put it another way, traders who are short can take profit against the 200 hour MA and simply put a sell stop below the 200 hour MA, if it does break. They can then see what happens when the market corrects back to the 100 hour MA (or other upside target). They can resell against the 100 hour MA, thinking that the trend will re-establish itself. If the 100 hour MA holds (with a 10-15 pips buffer usually), and the price starts to move back down, you are dancing to the markets tune.
The leap of faith is believing in the MA lines that they are followed by the market. The point of the post this weekend was to show – yes the market does follow the 100 and 200 SMA. That is why I love them.
How come? Why? One reason is smart traders will gravitate to something that the market believes. Smart traders need a reason to do a trade. If they have a reason to enter a trade, they automatically have a reason to exit a trade. If the market falls below the 100 hour MA, the price should go down. If it does not, GET OUT. That is a reason to do a trade and a reason to get out of the trade. Without a reason to do a trade, you have no reason to get out of a trade. If you have no reason to get out, you are now trading off emotion and that emotion is FEAR. Fear is a traders worst enemy. Believe me it is.
So again why 100 and 200? One reason is if I watch CNBC or Bloomberg and someone talks technicals (95% of information on TV is fundamental – technicals analysis does not make for good TV – but ironically Fundamentals don’t tell you when to get out of a trade because you are wrong. It just tells you to get into a trade. HMMMM.), but if someone does mention technicals in any market it will be the 100 or 200 day SMA. Exponential is too confusing for the masses. I can teach a group of people the SMA but if I were to teach the same group the EMA, fewer would understand. I can’t do a 20 bar EMA on paper but can do a SMA with a calculator). Market direction is controlled by the masses with the big boys leading the charge. not the few. That is why I not only love MA, but love trendlines and Fibo levels too. The smart MASSES love them. I used to think about developing my own tools but after failing and wondering why, I realized that the market does not care or know what my proprietary tools is saying. I cannot tell the “market” what to do, but I can follow what the masses are doing. If you want to ignore a trendline that has been tested 7 times in a trend type move and the price goes below that trendline, then you are simply foolish. The “market” sees it. We all see it.
I feel the 100 and 200 bar SMA is the same thing. If the market price trades around it, it will do something. It may go through, it may bounce off it. Ironically, it may even stay around it and frustrate us all (not often but it can). If this happens, I know, the longer it does this, the better chance the market will really look to get away. I look to really anticapate a trend type move. I wear my best suit to work because it will be a big day (figuratively of course). As a trader I am looking for the breaks – that trend. Trends make the most money the fastest. They are directional and they are faster. You only have one choice. Trade the trend. Trading against the trend will guarantee fast loses. Not trading the trend is a missed opportunity. You did not dance the BEST dance at the wedding. You missed all the fun!
You asked a quick question but you got a chapter from my book which will be out next year. Given the response I have gotten, I will focus my webinar on Tuesday on MA that will further go through this idea – I will use the GBPUSD as the example. To register go to https://www1.gotomeeting.com/register/356147496.
I hope this makes sense to you. If it does not, come to the webinar or watch the re-broadcast.
Kind regards, Greg
You are welcome Greg
Follow the bias. Look for the next target. If it gets through, look for the next and the next and the next. Trends take steps that go through targets. Greg
Please address the following Trigger vs Confirming MA question. If price if above both the 200 SMA and 100 SMA, and the 200 SMA is above the 100 SMA, you have a situation where if price reverses and comes down, price must cross the 200 SMA first (as the 100 is below the 200). In this situation does the 200 SMA become the trigger and the 100 SMA the confirming?
WOW Greg!
Thanks again for the insight. I have been trading primarily with S&R, Trendlines, and Fib retracement, but I am definitely going to add 100 and 200 SMAs to my arsenal. Can’t wait for the webinar, I’m signing up right now!
I will go through the process…The price moves above the trigger the 100 bar MA. triggers a buy The next move is the move above the 200 bar MA confirming the trend. All is ok until what you describe happens. THe price moves fails above the 200 bar MA and move back below the 200 bar MA. This turns the bias back down /bearish or at least neutral. Sell when it moves “back between the Goal Posts” (in between 100 and 200 MA). When this happens the “market” is saying, “wait a minute, we should not be trending higher yet. Lets think about it”. So profit should be taken. Sell. The market will be disappointed that the trend is not going to happen.
A lot of times, the move back below the 200 bar MA will now look to head back to test the 100 bar MA. It is ok to buy on that dip against the 100 bar MA as the bias is still bullish above the trigger. but I am a patient buyer close to the 100 bar MA. Stop is on a move below the 100 bar MA. If the market holds the 100 bar MA look for the next move through the 200 bar MA to confirm that trend.. Now the market is ready. If the market moves below the 100 bar MA, GET OUT of the long with a small loss. I tend to be patient as the market is not really sure what it wants to do.
Hope this helps Greg
in the Euro 2 day traders will be watching the 1.2677 Lev any thing under neath the Lev and it would dramatically change the mood Eur/usd it is progressing ever so slowly UK bank holiday 2 day so many London traders are off however i think they would have been bullish any way but lets hope someone is watching so we dnt see any key support broken
Very helpful, thanks for the excellent explanation!
U r welcome…Greg
look forward to reading your book on moving averages .. i use the 100 and 200 sma i have done ever since i started trading with you. Market dose follow them for support and res Lev quite nicely. their are times when i can say no it will not hold this time and their are times where i see a pattern developing and i see that the 100 bar hourly moving average is close and then i have confidence to go of and leave my trade in and come back with confidence that market would have at lest found support on Lev, but using them alone will not make money. their are rules that that need to be applied to devising a strategy for placing you trend lines and fib Lev if you always place them in a systematic approach you will now what market is wring most important with any system is to keep it the same . As a trader you need to ask you self a question is my system profitable if the answer is no then you need to go back to the drawing Bord and find one that is agree you have to find tools that ever one uses or else they become pointless ever thing that is on the mt4 platform is all you ever need its only now i have learnt placing tools on the chart hides the price no one else waited for Jupiter to aline with Mars ..:)
I like the 100 and 200 SMA that you used. I have 2 questions:-
1) When the price triggers the 100SMA, do we buy/sell immediately or wait for the end of the candle?
2) For a bearish bias, there is no confirmation, since 200SMA is always above 100SMA, as trigger is at 100SMA. Or trigger is at 200SMA?
I couldnt agree with you more “that using them alone will not make money…”
It is my opinion that trading is not a pure systematic approach, just like heart surgery, hitting a baseball, being a lawyer, accountant, builder, etc, all are not systematic. It is not that easy. This is not building a car to the same specifications that a robot can do. People tend to think they can buy a program that will double their money but it doesn’t happen. Folks trading is just not that easy. I do not profess that by looking solely at the MA you will make money. You will find great trade location….it is through the next steps and the next steps and the next steps, coupled with money management, defining risk, etc which will determine if you are successful or not.
People who play golf and are terrific athletes can look at a swing, mimic the swing, stare at a ball that is sitting stationary on the ground, yet be horrible at golf. They don’t know what they are doing right, they don;t know what they are doing wrong. They could be as strong as an ox, yet someone who is 170 lbs can out hit that player by 100 yards. The difference is the 170 lb golfer knows what he is doing and still he misses putts, pulls drives, slices 4 irons and can go from the best golfer in the world to number 122
I love MAs, but also love trendlines. I love fibo levels too. I love these borderlines and realize that the price moving below the 100 bar MA will only go lower if it gets through the next target and then the next one, etc. It is a dance you are dancing when you trade. It doesn’t have to be overly complicated but you need to know the steps and how they all fit in with the plan.
Think about it. Think about it.
Greg
When I feel strongly about an opportunity I buy. The market should move. I will put a stop 10 to 20 pips max. I am looking for the market to move away from the level. If the market goes 5 pips through and reverses right away, I will sometimes close right away. The point of the line is to ignite a move. That is why I love them…
Look at the 100 bar MA on the USDJPY 5 minute chart. The price was above the 100 bar MA and the 200 bar MA. The price peaked and moved down. It broke below the 100 bar MA and then the 200 bar MA. Now look at the bottom. The 200 is above the 100 now as it lags. The price moves above the 100 bar MA now and the bias goes from bearish to bullish. You should buy or be long if you think the market will reverse and trend higher. Stop below the 100 bar MA. Assume the price goes back above the 200 bar MA but then fails. Get out when it falls back below the 200 bar confirming. WHy? The price cannot extend. It cannot keep the confirmation of the bull move going….take profit. I hope this helps…Greg
I cant watch the webminar at 4pm…. are you going to publish it on your site?
yes
Hi Greg , bit confused , my MA’s , 100 &200 seem a bit different to yours . Example , yesterday ( 25th jan ) on GBP /USD daily chart , the bottom of the candle just touched the 100SMA on your chart ( I watch your commentary every day ) whereas on mine it went below by about 40 pips ??? I’m using the straight forward 100 and 200 SMA’s . Please help !!
Thanks , james
Do you use FXDD charts? OTher brokers/charts will use other times to start and end the trading day. FOr example, they may use GMT. The true beginning and end of day in the forex market is 5 PM ET. Greg
you could also check your history center and look if there are any gaps, holes, i had this once you need the correct data then. I had a hole(missing data of like at least 8 days or so) and my MA´s very totally misplaced. if you need help you can also email me i can send you the right data if u want.
and if you use another broker than fxdd there will be properly some differences.
James was using another broker (the FXDD methodology of using 5 PM ET as the end of day is the RIGHT end of day price). But since you brought it up, traders can refresh charts by clicking on Charts and Refresh. Thanks Daniel!