You’ve probably heard that using the moving average indicators on a chart helps give you more accurate projections and technical analysis. The only question however is that – are you using it properly? Furthermore, do you understand what the indicator means and the signals that it makes? In this article, we’ll share with you how you can benefit from the moving average indicator as a trader. We’ll feature a strategy with moving averages that not many traders are familiar with.
1-Minute Trading Strategy Components
Before we head right to the strategy, let’s check out the things you need. Here are the essentials for this strategy on Pocket Option.
We’ve already known what moving averages are, and how they look like on a chart – if not, please check out this article to learn more about the moving average indicator before proceeding with this strategy. Also, there are four different types of moving averages used in Pocket Option. For this particular article and strategy, we’ll be using the Simple Moving Average or SMA as our moving average indicator for the reason that it gives us a smoother line that helps us identify future trend direction.
As you may have known, a moving average may not be as effective on its own. It needs other indicators to serve as confirmation of the analysis. So, for this particular strategy, we’ll be using two simple moving averages – namely, SMA 8 as a lower moving average and SMA 21 as a higher moving average. SMA 8 will serve as the indicator for price data at a fast pace, while the SMA 21 will show the price data at a slower pace.
A great advantage of using two moving average indicators is that it makes the possible entry and exit points visible on the chart. These entry and exit points are made visible whenever the indicators cross or intersect each other. Furthermore, the trend of the market would be identified by simply knowing which indicator is on top of the other.
To set up two moving averages on the chart, simply look up the indicator setting from the upper left corner of the trading dashboard and click moving average twice. After which, you’ll need to change the period settings and MA type by clicking the ‘pen’ icon near the Moving averages tab. Choose periods 8 and 21 for each moving average, and choose SMA as MA type for both.
Binary options trading allows you to gain profits fast by trading in short time frames. Although this strategy works for any time-frames, we’ll be using a 1-minute time frame to match the requirements of the Pocket Option style of trading. When trading on Pocket Option, you get to choose between different time frames however with limited expiration times. The expiration time simply refers to how long a forecast should remain valid to gain profits.
For example, if you’ve chosen an expiration time of 2 minutes, a ‘higher’ direction forecast should be fulfilled or maintained for 2 minutes to gain profit. However, if the price goes ‘lower’ than the entry price after the expiration time, the trade is considered a loss.
To set the time frame, look up the candle and time settings and choose ‘M1’ from the list of time frames as shown in the image. To change the expiration time for each trade, go to the right corner of the screen look up the ‘time’ tab and choose ‘M1.’
This strategy also takes advantage of price breakouts on a chart. Price breakouts happen the price breaks through a moving average line. For a breakout on an uptrend, the candle should start from below the moving average and break out through the moving average. The close of the candle should be above the moving average.
The strategy takes advantage of price breakouts by assigning this as potential entry and exit points – for the assumption that the direction will start to reverse at the breakout point.
Another essential component of this strategy is the knowledge about candlestick patterns. Candlestick patterns show strong signals of how the market or trend would possibly react to price actions. Having a good knowledge about candlestick patterns provides you with confirmation for breakout points on a chart. Furthermore, a good knowledge of candle patterns lets you verify if a breakout is a sign of reversal or trend continuation.
How To Use The Strategy On Actual Charts
The first step to do when using this strategy in trading is identifying the trend of the market. With the two moving average indicators, it is easy to tell whether the market is on an uptrend or downtrend. Whenever the SMA8 is above the SMA21, the market is at an uptrend. Whereas if the SMA21 is above the SMA8, the market is at a downtrend as shown in the example. To know which SMA is on the chart, notice how the lower SMA is always closer to the candles.
After identifying the trend, check for breakout points on the chart. The breakout points would be easy to identify as they are the candles that break through the moving average indicators.
Lastly, enter or open a position when there is a good signal. Signals can be confirmed through candle dimensions and patterns.
Opening positions on price increases
For this example, the trend is immediately confirmed to be an uptrend due to the SMA8 (red line) being above SMA21 (blue line). Furthermore, the higher highs of every swing confirm the trend.
In this example, there were three instances of possible entries for a long trade. These are the best openings for the reason that they are found after a breakout, and each has strong bullish candles that formed below the moving average indicators. Candlestick patterns also show that these are cases of bullish engulfing patterns where the bearish candle is engulfed by a bullish candle that signals trend reversal to an uptrend.
Notice how there were two wrong entries shown by the red ‘x’ in the image. These are not classified as openings because of the weak signal of the bullish candle.
Opening positions on price decreases
For price decreases, the trend should be at a downtrend by making sure that the SMA21 (blue line) is above the SMA8 (red line). It is also determined by simply looking at the overall layout of the chart – which is sloping downwards.
This particular example in the image also shows three possible entries on a downtrend. Each opening is located above the moving averages after a breakout. Also, the candles show overwhelming strength by the bearish candle than the bullish candle preceding it.
The entry marked by the red ‘x’ is considered a wrong entry point although it may have been a successful trade. This is for the reason that the bearish candle is still too weak to signal trend reversal toward a downtrend. Furthermore, if we look at the preceding candles, the trend continued to move sideways before actually giving a strong bearish signal.
One thing that we can note from this particular example is that weak candles may signal consolidation or sideways movement of the trend. Entering or opening positions during consolidations can be devastating since there is great unsure about the possible direction of the market. Only trade with strong signals using strategy.
The 1-minute strategy using SMA8 and SMA21 can only be powerful if you can identify possible entry and exit points on the chart. Knowledge of the best entry and exit points on the chart requires a good understanding of moving averages, breakout points, and candlestick patterns. But what’s important is to gain experience from using it in real-time trading.
To master this strategy and to further improve your trading skills by trading real-time assets, check out the Pocket Option demo account. It allows you to trade in real-time without having to spend anything.
If you find this article helpful in your trading, check out our other articles for more tips and hints on how you can become a better trader! For comments and suggestions, do let us know through the comment box below.
Enjoy this strategy and best of luck on Pocket Option!
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