If you are already trading forex successfully then you likely will find this hub below your level of expertise but for those learning to trade then this might be for you. We are now in the third hub of this series and in the last hub I'd left off by saying that we would move to a lower time frame and use a technical indicator to try to locate entry and exit points within a range that we'd pinpointed from our assessment of longer time frames.

Many swing traders live or die by historical price data that is found on a daily trading chart. To the right is such a chart where over 300 bars of past auction quotes are cluttered together. Isn't that a beautiful thing. But to make it even more attractive you can add a few lines to the chart ( see chart below ) and you can use it while meditating. Turn on some ocean sounds and picture yourself on an ocean front property. You feel the wind in your hair. You smell the freshness of a world beyond the horizon as that wind blows into your hair. You see the waves as the cycles of life.........

Ok that could be one use of trading charts and as long as they are used for that purpose then it is likely that you haven't tamed the beast within them to make yourself a fortune that would have gotten you past the point of fantasizing about owning ocean front property or maybe even a yacht to get you to the horizon.

So fantasy aside forex waves are the cycles of the life of market makers who move large volumes of currencies through the interbank system. Somehow, some people believe that the markets are efficient and that the true fundamental value of a financial asset is reached at some point.

Some people are called technical traders because they believe patterns develop with points of support and points of resistance where speculators challenge each other regardless of the underlying fundamental truth of what something is truly worth.

Swing traders are one type of technical traders. They swing with the waves. From the above chart one might assume that trading swings is easy but pictures do not always tell it like it is.

While the picture shows a perfect rendering of historical price data it is the interpretation of that data and the execution of trades that makes the swing trader succeed or fail. The simple moving average lines provide a technical indication of the motion of the ocean. It is only a hint of the progress.

How does a simple moving average work ?

The real simple answer to that question goes as follows. Take two static bars and add up the price of the two. This could be the close, open, high, or low price. Take that sum and divide by two and there you have an average of the price for those two bars. The robot prints a dot and repeats the process for the next two bars and the next and so on ad infinitum. The dots form a line and the line takes a shape.

The robot simply needs to know how many bars that you want to track an average for. In the above example our waves are formed by a 9 bar average and a 26 bar average. Fear not, moving averages come in all types - simple, exponential, smoothed. Moving averages are considered to be lagging technical indicators since they form an opinion of price data that has come and gone. They can only be used to speculate on the continuum of market sentiment. When two moving averages work together they provide crosses which are very telling. Speculators love tells. Ask any great poker player who is adept in psychology and in reading people or better yet go play games with these aces of card rooms and they will teach you about market psychology and about fear and greed much easier than I could ever.

Some traders live by the cross. Usually these are the guys you find in addiction recovery programs. The guys who have witnessed the wrath of the devil while trading crosses too aggressively and losing it all. But others continue to enter and exit out of trading positions on trading average crosses and they continue to succeed in trading.

Why ?

There lies an opportunity which I think will get you to read on...so I will attempt to lead you to the next hub in this series which will look deeper into living by the cross. 

Pass the plate honey....

See Living by the moving average cross below.

If you get there before I do then I am not far behind...so come again honey.