Moving Average Cross Trading Strategy

Moving Average Cross Forex trading strategy — is a simple system that is based on the cross of the two standard indicators — the fast EMA (exponential moving average) and the slow EMA. You can also use our free Adjustable Moving Average Cross expert advisor to trade this strategy automatically in MetaTrader platform.

Features

• Very easy strategy to follow.
• Simple indicators used.
• It's easy to set stop-loss.
• Moving averages are laggy — can lag up to 10 bars.
• Ineffective during the flat markets.

Strategy Set-Up

1. Any currency pair and timeframe should work.
2. Add an exponential moving average to the chart, set its period to 9, apply to Close, set color to red (optional) — this is your fast moving average (FMA).
3. Add another exponential moving average to the chart, set its period to 14, apply to Close, set color to blue (optional) — this is your slow moving average (SMA).

Entry Conditions

Enter Long position when FMA crosses SMA from below.

Enter Short position when FMA crosses SMA from above.

Exit Conditions
Stop-loss for Long positions should be set to the Low of the last candle before the cross occurred. For Short positions — to the High of the last candle before the cross.

Take-profit should depend on the stop-loss and should be not less that stop-loss. I recommend setting TP to 1.5 * SL or 2 * SL.

If another cross appears before the stop-loss or take-profit are triggered close the position.

EXAMPLE

As seen on the example chart, entry conditions are quite clear and with the proper TP/SL ratio, this strategy can be quite profitable.

Warning!

Use this strategy at your own risk. It's not recommended to use this strategy on the real account without testing it on demo first.

Adjustable MA Expert Advisor

Adjustable MA Forex expert advisor is a customizable moving average EA that offers flexible tuning of the traditional 2-MA cross strategy. You can set different MA periods, MA types, minimum difference, stop-loss, take-profit, trailing stop and slippage. This expert advisor always opens position on cross and closes it on the next cross.

The back-test of the Adjustable MA MetaTrader expert advisor on the 1-year period showed ~19.5% profit with ~10% maximum drawdown. The used position's volume was set to 0.1 standard lots. The EA made 248 trades, of which 60.48% were profitable. The default settings were used in this back-test on EUR/USD M5 chart.



Downloads


Download Adjustable MA expert advisor for MetaTrader 4

Download Adjustable MA advisor for MetaTrader 5

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Top 10 Ways New Forex Traders Lose Money

Statistics show that the initial success for new forex traders is disturbingly low. Over time, this trend tends to improve, but for many, it is too late. After posting a series of losses, many new traders will give-up, believing that forex trading is simply not for them. It does not have to be this way.

1. Lack of Experience

   Forex trading - like any new initiative - has a learning curve. However, unlike learning a new skill such as learning to play guitar for instance, you are not risking your entire savings while discovering the difference between a major and minor chord. Learning about the currency markets and basic trading principles solely on a trial and error basis is not a recommended approach for gaining the skills necessary to be a successful forex trader.
   Most online forex brokers offer a practice version of their trading platform that offers the very same experience as a live trading application. Typically, once you create a practice account, you are free to trade and deal as you wish risking only the "play" money used to seed your account.
   With a forex demo account, you can see how the market reacts to economic forces including news events without actually risking your investment capital. However, you must treat this account seriously if you expect to learn from the experience. If you simply shrug off a loss without understanding why the loss occurred, then you are wasting your time and setting yourself up for disappointment. Take advantage of this unique forex market training tool before committing your money to a real forex trading account.



2. Unreasonable Expectations

   First off, stop believing all the “get-rich quick” hype still perpetrated by some forex dealers. Yes, there are those that do get rich trading forex but some people also get rich selling houses. In either case, it does not happen overnight and it might take years to gain the experience and insight to turn forex trading into a full-time, successful occupation.
   As a new forex trader, if you manage to stay in the game without losing all your money in the first few months as is all-too-common – then you may be able to learn what is required to be profitable. In other words, don’t quit your day job just yet.



3. Absence of a Sound Trading Plan

   Next to having unreasonable expectations with regards to the risks associated with forex trading and the amount of time required to be successful, a common mistake made by new traders is the lack of a forex trading plan. In reality, there are two aspects to this plan; an overall objective for your trading activities and a plan for each trade you make.
   Your overall objective should include the currencies that you intend to deal in, the amount of leverage you will use, and the amount of time you intend to devote to your trading activities. Your plan must also include a realistic rate of return you expect to achieve. In addition to your overall objectives plan, you also need an exit strategy plan for each trade you make that includes the upper and lower boundaries of the trade.
   In other words, you must identify the level at which you will close positions and take your profits (take-profit order) or in the case of a losing trade, the level at which you are prepared to go before you get out of the trade thus limiting your losses (limit order). We’ll talk more about stop-loss and take-profit instructions later.



4. Lack of Discipline

   A plan is only of value if you actually have the patience and the discipline to follow it. While this can be difficult, it is necessary if you expect to be successful, and it is this very reason why developing a plan prior to the trade is so fundamental. As rates fluctuate, you can easily get caught up in the market and it is only human nature that you will begin to second-guess your actions. If, for instance, the rate moves up surpassing your original take profit point, you may be tempted to hold out for an even higher return; alternatively, if the price drops below your limit level but you believe there is a big rebound just around the corner, you may be tempted to keep the order open on the hopes of a reversal.
   But does either scenario really make sense? If before you entered the trade you had a sound reason for establishing both your take profit and your loss limit levels, how likely is it that conditions have changed so much that now you are prepared to throw your previous assessments out the window in the heat of the battle? Can you be sure that you are not acting on emotion rather than sound analysis?
   This is why a plan is so important – it allows you to avoid the emotion that is bound to arise during times of volatility.
   Now this is not to say that a trading plan can never be revised – in fact, your overall objectives should be re-examined every few months or even more frequently if required. As well, it may be necessary sometimes to abandon a plan mid-trade if market conditions warrant but this should be the exception and not the norm.
   And yes, sometimes the market can be so volatile that no amount of planning will produce positive results. In this case, maybe the best option is simply not to trade until you can get a better handle on things. Never allow yourself to fall into the “I have to do something” trap – sometimes the best plan is to do nothing.



5. Failure to Include Stop-Loss and Take Profit Instructions

   When you place a market order and leave it open – that is, enter a trade at the market price without instructions to close the order – you are in effect, gambling with the total value of your account. For this reason, you should consider adding stop-loss instructions to all open positions.
   For instance, if you are holding a long GBP/USD position, you can include a stop-loss instruction that automatically sells your long position if the rate falls to a certain level. In this way, you can limit the amount that you could lose on any given trade – even if you are unable to constantly monitor your account.
   Take-profit orders are similar in that they allow you to establish the rate at which you want open positions closed in order to lock-in profits. Again, you simply need to identify the rate at which to take the profits, and the trading system closes the position without further intervention on your part.



6. Excessive Leverage

   Depending on your experience level, trade leverage can be a powerful tool to help you maximize returns, or it can be the cause of your downfall. It is not something to be taken lightly and if you do not understand how it works, don’t trade until you do understand.



7. Holding Too Many Open Trades

   Fighter pilots call it “helmet fire” and it happens when too much is happening around you too quickly for you to react. In the cockpit of a jet fighter, it can get you killed – as a forex trader, you may not end up dead but you will probably end up broke.



8. Holding Losing Positions Too Long

   One of the things that really separates seasoned forex traders from those just starting out is their ability to determine when a losing trade is not going to reverse the trend. Rather than “hold and hope”, disciplined traders will take the loss and get out much more quickly.
   This is another reason to set protective stops on all your trades; if you include effective stops when you submit a new trade, you can at least limit your losses without having to spend too much time “babysitting” the order. If the trade hits the stop, you will lose the amount committed but you also protect the bulk of your capital, leaving you with funds to move into something else that, hopefully, will be more profitable.
   Sometimes, you just have to treat these things as life lessons – learn and move on.



9. Ignoring Rate Spread Fluctuations and the Impact Spreads Have on Profitability

   Exchange rate spreads – the difference between the bid and the ask price – are of utmost importance and directly affect the profitability of each trade. You need to be aware that spread differentials can fluctuate wildly during the day – sometimes to the point of turning a profitable trade into a loosing one.
   You also need to understand that forex spreads will widen during off-market hours when volumes and liquidity are lower. In addition, spreads tend to widen ahead of important news such as an impending interest rate decision or the latest employment results.



10. Thinking About the “Big Win” More Than Effective Cash Management (AKA Greed)

    This one is pretty straight-forward – greed; or more correctly, how greed can cause you to enter into ridiculous trades. This must be the same gene that causes some people to keep “doubling-down” even when the odds are so against them that it make no sense at all. If you want to gamble, go to Vegas.

What Is MetaTrader?

MetaTrader is an electronic trading software created by MetaQuotes Corp. for online Forex, CFD and futures trading. It allows advanced charting (with multiple built-in indicators), multiple-account and multiple-window management, setting all types of market orders (except for OCO) and features a C-like programming language (MQL) that allows development of the custom indicators, scripts and trading robots (called expert advisors in MetaTrader). But the most important feature of MetaTrader is that it’s free (except for the mobile version). The sample view of the MetaTrader platform is shown below:

As of now, there are two major versions of this Forex trading platform – MetaTrader 4 (or MT4) and MetaTrader 5 (or MT5). The former is more popular as there are almost no Forex brokers that offer live trading via MetaTrader 5. There are two main differences between the 4th and 5th versions:

1. Internal coding languages are different – C-like MQL4 in MetaTrader 4 and C++-like MQL5 in MetaTrader 5.
2. Unlike MT4, in MT5 a trader may hold only one position in one currency pair at a time. You can’t hedge positions in MT5. If you send a Sell order with an open Buy position, the order will close the position rather than open a second position in an opposite direction. It’s done to comply with the US FIFO regulation and to reduce the impact of overnight swaps on the traders’ accounts.

It’s easy to trade with MetaTrader. The platform consists of several standard windows and toolbars:

• Chart windows – display charts and indicators – that’s where you analyze your currency pairs.
• Market watch – a list of symbols available for trading along with the most current Bid/Ask prices.
• Navigator – allows navigation through different accounts, custom indicators, scripts and expert advisors.
• Terminal – lists open positions, account history, broker alerts, account mail and all the logs.

MetaTrader is popular because of its advantages; here’s the list of them:

• Free software. You don’t have to pay anything. You can download the platform from any MetaTrader broker or MetaQuotes themselves, open a demo account via it and use it for chart analysis even if you trade with a non-MetaTrader broker.
• Simplicity and customization – there’s no terminology to learn and everything is done in 2–3 clicks. Charts and windows can be customized without any problems by any trader.
• Ability to create your own indicators and expert advisors. After some basic coding training you’ll be able to create your own tools that will fit your personal trading style.
• High popularity means a lot of user-created content. There are thousands indicators and expert advisors written by other traders and available for free download for your MetaTrader.
• Account history and reports. You can customize your reports and see a good statistical analysis in the standard MetaTrader account reports.

Of course, nothing is ideal in this world and MetaTrader isn’t an exception. It has its own disadvantages:

• Having to install the software. MetaTrader should be downloaded and installed on the trader’s computer – this can be a problem for some people. Many brokers nowadays offer a web-based trading platform that can be ran online inside the browser without installing anything.
• No real support for that user-created software. If you download some indicator or expert advisor, you won’t get too much help with it, and using third-party expert advisors may even be dangerous.
• No “One Cancels Other” orders. You can’t set two orders and tell the platform to cancel one when the other triggers. You can get this functionality by creating a custom expert advisor or script – but that can’t compare to the standard OCO option.

Now you know what MetaTrader is and why is it so popular among the Forex traders worldwide. If its advantages attract you, you may want to consider downloading the platform and trying it on demo account. If you have any questions or comments about MetaTrader, please, use the commentary form below.