Moving Averages are one of the most widely used technical indicators. They are simple, easy to use yet highly reliable. Many manual and auto trading systems use them.
Moving averages can be useful when you are looking to confirm a trend. The first rule of thumb when using moving averages is that when the currency pair price is above the moving average, an uptrend is in place. When you combine this with a bullish candlestick pattern you can get profitable entry and exit signals. Similarly, when price action is below the moving average, a downtrend is in place.
If you find a bullish candlestick trend continuation pattern forming above the moving average, it means the trend will continue for sometime in the future and you can safely enter into a long trade.
You can use a single moving average in your trading system but a better approach would be to use two moving averages. When you trade with two moving average, one is the slow one having higher number of periods and the other is the faster one with lesser number of periods, you get more accurate trading signals!
When the slow moving average trades above the fast moving average, it confirms an uptrend in the market. When the slow moving average crosses above the faster moving average, it is called a moving average crossover.
It means an uptrend. When this is confirmed by the appearance of a bullish candlestick trend continuation pattern like the thrusting line pattern, you can safely enter into a long trade. You can continue riding the trend till the slow moving average crosses below the faster moving average.
Placing a stop loss when trading with moving averages is a bit tricky as unlike the trend lines, there is no straight line that you can use to place the stop loss. Another problem that many traders face is recognizing the candlestick patterns that signal trend continuation or a trend reversal.
There are roughly more than 4 dozen candlestick patterns that are considered to be important signals for trend continuation or trend reversal. Memorizing all of them is not easy what to talk of recognizing them in time. An easy solution is to use a Candlestick Pattern Recognizer Indicator.
Using the combination of two moving averages one slower and other faster like 10 days and 20 days moving averages with candlestick patterns can be powerful. Both confirm each other. Just like you can use bullish candlestick patterns in an uptrend to enter and exit a trade, in the same manner you can use bearish candlestick patterns in a downtrend to get entry and exit signals.