INTRODUCTION The plethora of indicators, analytical tools, expert analysis and all manner of information available to today’s trader does sometimes overwhelm even the most cerebral of currency traders. Many traders like to apply a large number of indicators in order to identify the perfect entry or exit signal. Since such a signal does not exist, confusion then reigns with the attendant consequence of unnecessary losses. Therefore, the trader is well advised to concentrate on a small number of indicators and trading tools. I will refer to such trading aids as degrees or dimensions of freedom (DOF). This article describes a trading system with three DOF where the simple moving average is the principal player. SYSTEM DESCRIPTION The trading system is applicable to both trending and ranging markets. It comprises three degrees of freedom, i.e. simple moving average (SMA), support/resistance levels and Fundamental event risk. 21 period SMA The 21 period on daily charts approximates a month of trading days. It is also a Fibonacci number. Such numbers have rendered themselves very useful in growth studies, cycle analysis, physical phenomena, financial markets, etc. The SMA is preferred …
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