I plan to publish simple but effective strategies for making trading simpler and profitable.
To start with, let us talk about a moving average crossover strategy. I know, I know, MA crossover strategies don’t work unless the market is trending, you get a lot of whipsaws, etc.are the arguments against this strategy, scaring away newbies from what could be a potentially very profitable strategy leading to great profits.
Here is my twist to this simple method for day trading:
You wait for a crossover of a fast moving average over or below a slow moving average. When the crossover happens, you look at another indicator - RSI - with it’s settings modified as below:
RSI period is set to 5
Overbought and oversold levels are set at 60 and 40 respectively. However, we will use these levels as a filter for our trades based on the MA crossover.
If RSI is above 60, we will take buy signals only.
If RSI is below 40, we will only take sell signals.
If RSI is between 40 and 60, we will avoid taking any buy or sell signals.
By following this simple filter, we are able to avoid the whipsaws to a great extent, and enter the right trends that could give us a profit.
What moving averages should I use?
You can use any combination of fast and slow moving average. I personally use 8 ema (fast), and 8 sma (slow).
Try this method, and I can assure you that you will be pleasantly surprised at how easy and profitable trading has become.
