The 200 Moving Average

A number of traders have been in touch with questions about the 200 moving average, as a result I felt it only right to add this as a separate article and clear the air.

I may have gone over the top with my passion for the 200ma, hence many traders felt that they must religiously use the 200ma, whereby many others felt that it limits short term opportunities and somewhat lets them down.

The following is how I correctly apply the 200ma in my trading…

The 200 moving average must only be taken into consideration as a major trend indicator, only if it is hovering above or below the price range in the higher time frame … it must be ignored if it is seen within a price range or inside the Bollinger bands as can be seen in the Forex chart below (orange line)

If the above is the case, I would only place importance on the crossing and correct stacking order of the 8ma and 20ma moving averages. All other trading techniques shown must apply.

In other words, you must be prepared to buy anytime the 8ma crosses above the 20ma. You must also be prepared to sell anytime the 8ma crosses below the 20ma and ensure that they are stacking in the correct order! The chart below is the same as the one above but without the 200ma. This time trading opportunities are much clearer (short term).

The other concern seems to be about the exponential moving average (EMA) and the Simple Moving Average (MA)
The exponential moving average (EMA) puts emphasis on the most recent prices, and less emphasis on the older prices. Sometimes you won’t see much difference between the EMA and the Simple Moving Average, which does not weigh any price more than another.

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