How To Trade The 1 Day Moving Average- Part 2

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This is just a quick update to the first “How to trade..” article on the 1 day moving average which can be found Here.

It was whilst reading the Urban Towers Scalping Strategy that I thought about using it’s entry method to trade the 1 day moving average.

In short you could add the 1 day moving averages to you charts as two averages; one an average of the highs and the other an average of the lows. This would create a nice small band about 5-10 index points wide (on the FTSE).

Based on one of the ways you can trade the FTSE 1 day moving average, you wait for corrective abc shaped moves back to the 1 day and then trade in the previous impulse direction. So if you are under the 1 day moving average you will be going short and visa versa if above.

However what I though would be useful would be to use the 3 bar entry method of the Urban Towers System to create a systematic entry method for trading the 1 day moving average.

So the initial trade warning would be a corrective retrace into the high/low moving average band. Then you would be looking for a pattern as follows:-

Urban Towers

In this example we would be above the 1 day moving average correcting downwards towards it. You would wait for the 3 negative candles/bars (at least) into the moving average band and then look for positive impulse back up off the band. If trading it exactly like the Urban system you would enter on the break of the last candle high.

I think this would work quite well for trading the FTSE 1 day moving average. I would suggest that you might like to use a slightly slower time frame. Maybe 10 or 15mins. I think 5 mins would be too quick as it gets quite choppy around the moving average.

You can also add more lines to your band so rather than have a high/low moving average band you can use multiple moving average envelopes based on the 1 day moving average as your centre line.

One Response

  1. Donte Heppe says:

    Well, I have to confess that you’ve given me a whole new topic to think about. As if I didn’t already have enough of those (smile here)…

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