The first step is to properly set up our charts with the right simple moving averages so we could be able to identify the crossover at the later stage. The strategy uses the 20, 50 and 100 periods .
Most standard trading platform come with default moving average indicators so it should not be a problem to locate the either on your MT4 platform or Tradingview.
Step #2: Wait for the 20 crossover and A - for the price to trade above the 20 and 50 or B - for the price to trade below the 20 and 100 .
The second rule of the strategy is the need for the price to trade - above both 20 and 50 simple moving averages and secondly, we need to wait for the crossover which will add more weight to the case.
We refer to the crossover for a buy trade when the 20-SMA crosses above the 50-SMA in this trade.
Opposite is true for a trade - price is below both 20 & 100 and the 20 cross below 100 . We refer to the crossover for a sell trade when the 20-SMA crosses below the 100-SMA in this trade.
By looking at the crossover we create an automatic buy and sell signals.
However, since the market is prone to do a lot of false breakouts we at Trading Strategy Guides need more evidence than just a simple crossover. At this stage, we don’t know if the bullish/bearish sentiment is strong to push the price further after we buy/sell so we can make a profit.
To avoid the false breakout we added a new confluence to support our view which brings us to the next step of the strategy.
Step #3: Wait for the zone between 20 and 50 or the 20 and 100 to be tested again (break-hook-go), then look for buying/selling opportunities.
The conviction behind the strategy relies on multiple factors to confirm a new trading idea. After the crossover happened, we again need to exercise a little bit more patience and wait for a successful retest of these zones.
The successful retest of these zones gives the market enough time to actually develop a short term trend and protect you from a failed attempt.
Note* When we refer to the “zone between 20 and 50 or 20 and 100 SMA” we actually don’t mean that the price needs to trade in the space between the two moving averages.
We just wanted to cover the whole price spectrum between the two SMAs because the price often times will only briefly touch the shorter moving average (20-EMA) which is still a successful retest.
Step #4: Buy/Sell at the market when we retest the zone and complete the break-hook-go.
Step #5: Place the protective Stop Loss 20 pips below the crossover candle.
Step #6: Take Profit once we break and close below the 50-SMA or above the 100 . Or a predetermined sup/res level.