Swing traders use many indicators to help them assess potential trade opportunities. Moving averages – both Simple and Exponential – are among the most popular and effective when developing a trading strategy.
In essence, a Simple Moving Average (SMA) is an expression of the average closing price of a financial instrument over a particular number of periods.Any number of time periods can be used, but the 5, 10, 20, 50, 100, and 200, are among the most popular.
When a shorter-term moving average line crosses a longer-term line, it may be an indication that an existing trend is accelerating or that it is losing momentum or about to reverse.
In the example below, taken from the EUR/USD weekly chart, we see the 20 EMA making an upward cross of the 50 EMA, indicating a strengthening uptrend after a bull pennant pattern had formed.
How to Use Candlesticks, Support and Resistance for Confirmation
Candlesticks such as hammers and inverted hammers are also good signal candles. But we should always wait for confirmation from the next candle before entering the trade.
Finally, as with all swing trading strategies, sound risk management is crucial to long-term profitability.This means using correct position sizing and appropriate stop-losses. And in the context of the moving average crossover, there are various possible approaches.