Many of our aspiring funded traders ask for trading tips and any additional means of forex trading analysis they can use when working with a fx prop trading firm.
We are here for you! We put together a mini-series of blogs with some simple tips to add to your Prop firm trading arsenal.
IMPORTANT: This mini series of forex blogs are not considered advice on how you should trade, but merely is providing a tool you can use to compliment your existing fx trading strategy.
On our first blog, we take a look at moving averages.
The first way that someone can use a moving average is by using the cross of two averages.
In this example on the Gold (XAU/USD) chart you can see the 20 exponential moving average cross the 50 exponential moving average in an upwards direction indicating that the trend for Gold (XAU/USD) may have switched from bearish to bullish. After the cross, you can see that the price continued in the direction of the cross.
Our next addition with moving averages is using long term averages as an area of support or resistance.
Taking that same Gold chart (XAU/USD) you can see that the market pulled back in the direction of the trend to the 50 exponential moving average, rejected to break it and continued in the trend direction. Strong knowledge of price action is required to utilize this method as the behavior around the moving average is vital in analyzing whether or not the price has broken the average.
The final tip we want to share with you when FX prop trading with moving averages is what is called “the line in the sand” method. This technique is used specifically as an additional form of analysis and not a means of executing buy or sell FX trades.
In this image, you can see we have decided to remove the 20 period moving average from the previous chart and leave the 50 as our “line in the sand”. What we can see from this chart is where the price is relative to the moving average. If the price is on the moving average, it is a time of uncertainty. If the price has moved away from it above the moving average the trend is bullish and if the price has moved below the moving average the trend is bearish. The reason we do not use this method to execute trades whilst prop trading is that during range periods the price will continuously go above and below the moving average repeatedly hitting our stop loss.
Always have in mind that when you are trading at any prop firm or trading a live funded account, you should always practice good risk management. Have a stop loss, control your lot size and use what you feel comfortable trading. Moving averages can be a vital analytical tool to combine with your existing trading edge to pull as much profit out of the market as possible with proper risk controls.
Stay tuned for more.