Continuing on my article from a few weeks ago, I wanted to show more examples of how moving averages can assist you in trading decisions. As a successful trader and former graduate of Online Trading Academy, I also value price above any other indicator. But I do use some indicators such as moving averages (MA) in order to improve my chances for success.
Using moving averages can allow you to see if prices are too high or low on a relative basis. I mentioned that price is elastic. It will stretch away from the average and then snap back to it. This can be extremely useful as an odds enhancer.
When price is approaching a demand zone in an uptrend, the highest probable opportunity is to buy. If price is also bouncing from a moving average at the same time, then there is an increased chance for success as the MA will work as a bit of support.
Many traders struggle when the zone is wide, there may be a lot of risk in buying at the proximal line of that demand. Your entry could be far from your stop price. If there is a MA inside of the zone, you may be able to lower your risk and increase your probabilities buy buying on the touch of that average. Just do not try to buy a bounce of a moving average without a demand zone!
When you are in a long position, you would want to exit the trade at a supply zone. One thing to look for would be the location of price versus the MA when you are at supply. If price has accelerated away from the average, then there is a higher probability that the supply will hold as price will want to snap back to the MA.
Similar strategies will work for prices and moving averages in a downtrend. The important thing to remember is that price determines your entries and exits. Indicators such as moving averages simply serve to assist your trading decisions and should not dictate the decisions themselves.