Moving Averages And Candlestick Patterns-A Powerful Combination!
Moving Averages are one of the most widely used technical indicators. They are simple, easy to use yet highly reliable. Many manual and auto trading systems use them.
One of the easiest way to confirm a trend is to use a moving average. When the prices are trading above the moving average line, it means an uptrend in the market. In the same manner, when prices are trading below the moving average line it means a downtrend in the market.
Suppose, the prices are trading above the moving average line and you spot a trending candlestick pattern like the bullish thrusting line pattern appearing above the moving average line. This is a good confirmation that the uptrend is firmly in place and is going to continue for some more time. You can safely enter into a long trade.
However, a better method would be to trade with two moving averages instead of one. When you combine two moving averages with candlestick patterns, you get a powerful combination. In this case, the trend will be defined by the location of slow moving average (the one having more periods) relative to the fast moving average ( the one having less periods).
When the slow moving average line crosses above the fast moving average line and starts trading above the fast moving average line, it is a signal that an uptrend in the market has started.
It means an uptrend. When this is confirmed by the appearance of a bullish candlestick trend continuation pattern like the thrusting line pattern, you can safely enter into a long trade. You can continue riding the trend till the slow moving average crosses below the faster moving average.
In the same manner, when the slow moving average crosses below the fast moving average, it signals the start of a downtrend in the market. When this is confirmed by the appearance of a bearish candlestick trend continuation pattern, you can safely enter into a short trade. However, many traders can't figure out the type of candlestick pattern that appears on the chart in time.
There are roughly more than 4 dozen candlestick patterns that are considered to be important signals for trend continuation or trend reversal. Memorizing all of them is not easy what to talk of recognizing them in time. An easy solution is to use a Candlestick Pattern Recognizer Indicator.
Using the combination of two moving averages one slower and other faster like 10 days and 20 days moving averages with candlestick patterns can be powerful. Both confirm each other. Just like you can use bullish candlestick patterns in an uptrend to enter and exit a trade, in the same manner you can use bearish candlestick patterns in a downtrend to get entry and exit signals.
Article Source: FxTradingStock.com
About the Author
Mr. Ahmad Hassam has done Masters from Harvard University. Get this highly profitable Magic Breakout Forex Strategy by Tim Trush and Julie Lavrin FREE. Get these Correlation Trading Cheatsheets FREE.
by: Ahmad Hassam
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Word Count: 472
Date: Tue, 28 Dec 2010
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