Moving Averages Crossover Strategy | Forex Options

Moving Averages Crossover Strategy

Moving Averages Crossover Strategy

The moving averages crossover strategy is one of the more basic and rewarding strategies used in the digital options arena. This strategy utilizes three different exponential moving averages, along three different time periods: 10, 25 and 50 minutes. The signal will be delivered when the 10 moves through 25 and 50. When the price action is upward, Call will be the selection. When the price action is downward, Put will be the selection.

Strategy Steps

To begin, you’ll need to access your preferred charting tool. Using this tool, open a new chart and plot the three moving averages. Your primary objective is to break down the price action and have it function as a visual aid for identifying the correct price direction. These averages also show support and resistance, shifting and transforming along with price motion.

Note that moving averages are a type of lagging indicator that are established and designated within the chart by performing a calculation of the price for the previous period. For example, should you select a 10 period, it will be charted using the average closing price of the former 10 candles. That is how a basic moving averages are measured, even though for some digital options traders the process seems complex in the beginning.

Strategy Benefits

The indicators being used are frequently used and can be easily applied to the digital options platform. The usage of only three averages makes it easy to trade. One of the most significant benefits is that large profits can come from using the Moving Averages Crossover strategy, while losses tend to be minimal. Should the asset price start trending strongly after you’ve moved into your first trade, similar trades can follow so long as market conditions remain properly lined up.

Potential Problems

The entry is derived from a transformation of the current price direction, therefore some type of counter movement is called for. However, as soon as your averages are lined up correctly, you should be able to keep on trading profitably until the next crossover takes place. Since the movement that generated the crossover might be a trend retracement, this strategy can be risky at times. Ranging markets, which offer lower levels of volatility do not pair well with this strategy.

On the bright side, there is no need to conduct any actual calculations because your charting software should take care of this task for you. All you need to do is select the moving averages, which should be the EMA (Insert>Indicators>Trend>Moving Average). Be sure to select EMA and 10, 25, and 50 periods. Afterward wait for market conditions to line up and then select the proper position. Remember, the 10 EMA should crossover the rest if the signal is to be a clear one.

With some practice this strategy should be easy to use. Your only serious effort is to simply set up the appropriate parameters using your charting software and then take action along with the supplied signal. As with all strategies that you plan to use within the digital options platform, be sure to complete some “dry run” practice prior to putting it to use in an actual investment situation.

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