Single moving average strategies

I’ll now outline some trading strategies you can use with moving averages. They’re based on the same principles I’ve outlined previously in chapters 3 and 4, and that I’ll now summarise:

⇒ The trend is your friend. Buy (go long) in an uptrend. Don’t buy in a downtrend, sell if you are currently holding or go short.

⇒ Trend changes are usually good trading signals, and there’s potential for the most profit if you act quickly. At the same time you need to exercise caution to avoid being whipsawed or getting your fingers burnt in a sucker rally or dead cat bounce.

The basic strategies using a moving average are illustrated in figure 5.7. In this diagram I’ve indicated the probable future moving average trend using a dashed line.