Forex Market Updates & Commentary

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Why I love the 100 and 200 bar Simple MAs. A look at the GBPUSD Posted: 28 Aug 2010 08:09 AM PDT The blue line is the 100 hour Simple MA.  The green line is the 200 hour Simple MA.  I use the same MAs on 5 minute and daily charts as well and they give the same “unambiguous” clues.  That is if the price is above  the MA line, it is unambiguously bullish. If the price goes below the MA line it is unambiguously bearish.  The “market” (that is the smart money and even those small traders who want to be like the “smart money”), tends to follow these MA (or so it seems) and as a result, when the price goes above them or below them, the price tends to move away.   It may also use the levels as support or resistance levels that traders will trade against when the “market”  is unsure of direction.  Why does the market use these MA lines? The reason is smart traders who are focused on risk, use these “borderline” levels because risk can be defined. I call them “borderlines” because the price is bullish above and bearish below .  So it is like a borderline where it is one state on one side, and another state on the other).   If you sell against a moving average (border)line like 10 and 11 in the chart above, put a stop 10 or so pips above (assume a bearish bias).  If the price goes down you have great trade location.  If the price goes above, the ”Market” is not doing what it is supposed to do, so GET OUT.  Don’t blame yourself. Blame the “market”!   If a trader is able to define risk and accept risk (10 or so pips above - it is up to you but it does not have to be any more than 20 pips), you can diffuse fear and “fear is a traders worst enemy”.    Traders need to “steer clear of fear”.  Not having fear allows successful traders to be confident of the position and trade more trend type moves.  The 100 bar MA is the trigger the 200 bar is the confirming MA.  At 1 the price breaks above the trigger MA and the price moves higher. The target is the 200 hour MA.  The market can not confirm the trend by going through and so this creates a borderline to take profit against. If the price goes through the 200, go long as the trend higher is confirmed.  The price does not do this and when the price moves below the 100 hour MA at 3, the bias turns negative and the price moves sharply lower.  The market bottoms and the price moves back up to 4 where the price breaks through the 100 bar MA and moves up again to the 200 bar confirming MA at 5.  It fails again, so the price comes down again and breaks below the 100 bar MA.  It corrects and tests the 100 bar MA at 6.  The smart money sells against the level (risk is 10-20 pips) and the price moves sharply lower.  The market bottoms again and starts the rebound. At 7 the price moves above the 100 bar MA  and this time through the 200 bar confirming moving average finally.  This should lead to a further move higher.  It does but the rally fizzles out and the price moves back below the MA at 9 and then back above and after trying to use the 200 bar MA as support, the price pushes below the 200 bar MA at 10.  Between 11 and 12, the smart money (i.e. the market) can not decide what to do as it awaits Bernake. So it ranges between the 100 MA line and the 200 MA line.  The market breaks and bottoms at 13 during Bernanke speach.  That fails and the market price moves above the 100 hour MA one last time, races to the 200 hour MA and stops.  The week ends inbetween the 100 and 200 bar MA.  “In Between the Goal Posts” is what i call it when the price is contained by the 100 and 200 bar MA. Next week I will use those MA for clues as to market direction. If the price stays above the 100 the bias is bullish but the price has to get through the 200 bar MA to confirm the bullish trend. IF it does, look for increased upside momentum. If it fails to develop that momentum and the price moves back below the 200 bar MA, get out (the market is not doing what it should do!  So get out!). If instead the price moves below the 100 bar MA, look for increased bearish sentiment.  Successful traders will use other tools like Fibonacci retracements, trendlines, and even 100 and 200 bar MA levels on 5 minute and daily charts  (these are my favorites) to target levels as the price trends lower or higher. I love moving averages - in particular the 100 and 200 bar MA lines.  They provide definable, low risk trading opportunities for the smart money.  If you want to subscribe to my daily emailed forex video commentary (4 times a day), send me an email at greg@fxdd.com.  I conduct free webinars twice a week on Tuesday and Thursday at 4PM EST.  To register and view rebroadcasts go to http://forex.fxdd.com/webinars.  You will learn, so you can be aware and be prepared.

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