Introduction
This is a trading strategy that utilizes technical analysis to capture large trends in the market. I briefly mentioned a version of it before in my momentum investing tutorial (link down below) but here I give a real world example of when this strategy could’ve been used and how it works in detail.
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Rules of the strategy
Entering the trade
1. Look for the 50 day moving average to cross over the 100 day moving average.
2. Look for a break of a resistance level.
3. Look for any bullish patterns.
Exiting the trade
1. Take 50% of the position out when the next resistance level or target for any bullish pattern is hit.
2. Take the other 50% of the position out when the 50 day moving average crosses below the 100 day moving average.
3. The stop-loss should be below the resistance level that was broken and signaled an entry.
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BTC/USD example
In the example shown on the chart, there is a clear breach of a resistance level, MA cross, and bullish pattern. It was a perfect setup and gave us an 11% secured profit in less than a week. The total 82.5% profit came after about 170 days, which isn’t bad at all. Of course, this is a backtest and not an actual trade, but it shows the potential such a strategy has.
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Why does this work?
This is an important question, since I doubt anyone wants to use a trading system without knowing if it makes any sense or not. So, here’s why: the 50 moving average is the average of the past 50 days, while the 100 moving average is the average of the past 100 days. If the 50 moving average goes below the 100 moving average, then the past 50 days have performed worse on average than the past 100 days. This tells us that the trend is potentially turning bearish, and the price might continue this short term bearish trend into the future. The same thing applies for the entry position: the short term bullish trend has the potential to drive prices higher as well. By getting in when things are turning bullish and getting out when the bear knocks on the door, we can realize some good profits over time.
Also, just so you know, the added bullish pattern and resistance break aren’t necessary, but give your trade a higher probability of success. ——————————————————————————————————————————————————————————————
Final thoughts
I hope this post has been useful and taught you something new. Just some quick news concerning my plans for posts: the swing trading series is scrapped, I’m focusing on educational ideas and have one coming soon (but will still do actual trading ideas if I see a setup I like). I will also do a new series just focusing on trading strategies for cryptocurrency and stocks, showing how to utilize certain indicators and patterns together to get the most profit out of a trade. Good luck and great trading everyone, will be posting soon!
*This is not financial advice, just an educational idea which is intended to teach people how to successfully get into trends when they start and exit when they end.
This is a trading strategy that utilizes technical analysis to capture large trends in the market. I briefly mentioned a version of it before in my momentum investing tutorial (link down below) but here I give a real world example of when this strategy could’ve been used and how it works in detail.
——————————————————————————————————————————————————————————————
Rules of the strategy
Entering the trade
1. Look for the 50 day moving average to cross over the 100 day moving average.
2. Look for a break of a resistance level.
3. Look for any bullish patterns.
Exiting the trade
1. Take 50% of the position out when the next resistance level or target for any bullish pattern is hit.
2. Take the other 50% of the position out when the 50 day moving average crosses below the 100 day moving average.
3. The stop-loss should be below the resistance level that was broken and signaled an entry.
——————————————————————————————————————————————————————————————
BTC/USD example
In the example shown on the chart, there is a clear breach of a resistance level, MA cross, and bullish pattern. It was a perfect setup and gave us an 11% secured profit in less than a week. The total 82.5% profit came after about 170 days, which isn’t bad at all. Of course, this is a backtest and not an actual trade, but it shows the potential such a strategy has.
——————————————————————————————————————————————————————————————
Why does this work?
This is an important question, since I doubt anyone wants to use a trading system without knowing if it makes any sense or not. So, here’s why: the 50 moving average is the average of the past 50 days, while the 100 moving average is the average of the past 100 days. If the 50 moving average goes below the 100 moving average, then the past 50 days have performed worse on average than the past 100 days. This tells us that the trend is potentially turning bearish, and the price might continue this short term bearish trend into the future. The same thing applies for the entry position: the short term bullish trend has the potential to drive prices higher as well. By getting in when things are turning bullish and getting out when the bear knocks on the door, we can realize some good profits over time.
Also, just so you know, the added bullish pattern and resistance break aren’t necessary, but give your trade a higher probability of success. ——————————————————————————————————————————————————————————————
Final thoughts
I hope this post has been useful and taught you something new. Just some quick news concerning my plans for posts: the swing trading series is scrapped, I’m focusing on educational ideas and have one coming soon (but will still do actual trading ideas if I see a setup I like). I will also do a new series just focusing on trading strategies for cryptocurrency and stocks, showing how to utilize certain indicators and patterns together to get the most profit out of a trade. Good luck and great trading everyone, will be posting soon!
*This is not financial advice, just an educational idea which is intended to teach people how to successfully get into trends when they start and exit when they end.
