The 3SMA Forex Trading Strategy for Direction Trading

Author: Martin Moni
Martin Moni
All publications of the author

Simple MAs are among the most effective specialized pointers in financial trading. Not only do Forex traders use it but also stock and commodity market traders, meaning that these tools have been tried and tested. In this 3SMA exchanging technique, we use not one, but three SMAs in order to identify and track bearings in order to make a profit. Before we begin, though, it is important to identify the conditions necessary for trading using this method. (Here is the: Forex strategy on based on MAs)

What we need to trade successfully

This is a very simple exchanging technique because it needs very few tools in order for the system to work. The first is very obvious just from the name of the exchanging technique itself, and these are the SMAs. We shall be using three SMAs set on 30, 50 and 100-period values. Fortunately, the exchanging technique will work on any timeframe, so there is no need to worry about that while you are trading. (Learn how to use: PAT in Forex)

However, this is a conservative exchanging technique therefore, it is advisable to stick to a higher timeframe. Higher timeframes reduce the chances of fakeouts on the Forex charts online meaning that you can avoid any incidences of short-term bearings. This means the exchanging technique is meant more for swing traders rather than scalpers who prefer to trade on shorter timeframes. Personally, I would not recommend going below the 1-hour timeframe as it just makes the strategy more risky. (Identifying the false breakout trading strategy)

Back to the SMAs… Once you have them loaded up on your Forex trading platforms, you should then give them different colours to make it easier to spot bearings on all 3 SMAs. Remember, this is a bearing exchanging technique, which means that it should be easy to identify the movement of the bearing just at the first glance. It is not a contrarian exchanging technique where we shall be going against the bearing, but rather following the bearing as far as it takes us. (This is the: Forex Intraday Market Flow System)

Conditions necessary for the exchanging technique

Now that you know all the tools needed, it’s time to know how those tools inform us on the bearing movement. Of course, the most important tools in this exchanging technique are the SMAs, so those are the ones we really need to pay attention to. For the three SMAs to provide a clear signal on bearing movement there are five conditions that have to be met. (These are: The 3 Most Trusted Exchange Authorities in The World)

That all SMAs be bearing in the same movement

A good trading chance is marked by all 3 SMAs bearinging in the same movement to confirm the movement of the bearing. You should abandon the trade even if just one SMA begins moving in the opposite movement compared to the others. In the image below, you can see that all through when the SMAs were not in the same movement, the markets were just trading within range. However, as soon as the SMAs started moving in the same movement, a new bearing was formed. This is the first and most important condition necessary for the exchanging technique to work. (This is: Why Traders May Need To Use a VPS Service)

The three SMAs should not cross each other

Usually, a crossover between SMAs is a trading signal because it represents a change in bearing movement. Be that as it may, we need to consider a crossover as a bad omen in this case because the idea is not to catch bearing reversals, but to follow established bearings. Therefore, whenever there is a crossover between any of the SMAs, wait until they line up before you place an order. (Learn the: Forex Trading Formula Based On the Most Dynamic Cross)

That prices stay on the correct side of the 50-period SMA

Occasionally, the price will have to touch some of the SMAs, but it should never cross the 50-period SMA. Sometimes, the price may even test this level, but as long as 3 consecutive candles do not close beyond that level, you’re still safe. When prices eventually close beyond the level on 4 consecutive candles, then you should know the bearing is weakening and may be running out. The image below is an ideal example of this situation. Here, the aforementioned level was tested repeatedly by the price fluctuations, but the candles were unable to break below the level.

Prices should never touch the 100-period SMA

Whenever prices touch this point, know that the bearing movement has changed and that it is over. This is the signal to close the trade and exit the position. On the image above, the upbearing ended as soon as the prices touched this level. (These are the: 7 Powerful Candlestick Patterns to Learn and Understand)

Prices ought to bounce off dynamic S/R levels

As you know, an upbearing is generated when the price keeps hitting higher highs with every upward swing in price. On this exchanging technique, it tends to generate dynamic S/R levels between the 30-period and 50-period SMAs. All these points also present trading opportunities from where to place trades.

Putting it all together

There are two ways of getting into trades using this 3SMAs exchanging technique, either by entering on the breakout or on the price swings. The first one is easiest to identify and also the most profitable because you catch the entire bearing from the beginning. The image below is the perfect example of how to do so.

As soon as prices broke above the 3SMAs, there was an opportunity to trade the upbearing, which is exactly what happened. After the upbearing began, the bearing kept maintaining all the conditions mentioned above until the candles broke below the 50-period SMA. This was the perfect position to close the position. Alternatively, you can also enter an upbearing when prices test the SMAs before the bearing resumes as in the example below:

In the second example above, there were multiple opportunities to get in on the trade as soon as the prices touched any of the SMAs. As for exiting the position, the bearing is considered over when the prices break below the 100-period SMA.

All the examples above were of upbearings, but the conditions only need to be reversed for a downbearing.

If you want to see this exchanging technique in action and learn to enter successful trades, then just watch this video illustrating an actual trade:

Was the article useful for you?
5 (2)


If you like this discussion on then please like us on Facebook