3 Moving Average Crossover Strategy

Using moving averages to identify trends and signals is a simple yet effective way to improve your forex trading performance. The 3 moving average crossover strategy involves using three different moving averages to identify potential entry and exit points for trades. This article explores the 3 moving average crossover strategy, how it works, what it tells traders and how to use it in forex trading. 

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What Is the 3 Moving Average Crossover Strategy?

The 3 moving average crossover strategy or triple moving average crossover is a technical analysis method that uses three exponential moving averages (EMAs) of different periods to identify the direction and strength of the market trend. These three EMAs are usually set to 9-, 21- and 55-periods, but you can adjust them according to your preference. The idea behind this strategy is that when the shorter-term EMAs cross above or below the longer-term EMAs, it signals a change in the trend.

How Does the 3 Moving Average Crossover Strategy Work?

If the 9-period EMA rises above the 21-period EMA and then the 21-period EMA crosses above the 55-period EMA, it's a bullish crossover, indicating an uptrend. 

On the other hand, if the 9-period EMA falls below the 21-period EMA and then the 21-period EMA crosses below the 55-period EMA, it's a bearish crossover, suggesting a downtrend. 

The gap between the EMAs determines the strength of the trend, with a wider gap implying a stronger trend. The slope of the EMAs reflects the momentum of the trend, with a steeper slope indicating a faster trend.

What the Triple Moving Average Crossover Tells Traders

Using different lookback periods for each EMA, the triple moving average crossover can tell traders how the price behaves in relation to its historical average. 

9-Period EMA

The 9-period EMA is the shortest and most responsive of the three EMAs. It tracks the price closely and reacts quickly to changes. It can be used as a dynamic support or resistance level, as well as an entry or exit signal. When the price is above the 9 EMA, it indicates that buyers are in control and that there is upward pressure on the price. When the price is below the 9 EMA, the sellers are in charge and there is downward pressure on the price.

21-Period EMA

The 21-period EMA, as the middle value, effectively filters price noise while remaining responsive to significant moves. It serves as a confirmation signal and a trailing stop-loss level. If the price surpasses the 21 EMA, it generally signifies an uptrend with the potential for further growth. Conversely, if the price drops below this level, it often indicates a downtrend with more room for decline.

55-Period EMA

The 55-period EMA is the longest and most stable among the three EMAs, reflecting the market's long-term trend and direction. This EMA can serve as a standard for other forex indicators and as a target or exit level. When the asset price surpasses the 55 EMA, it implies a robust bullish trend, indicating high asset demand. Conversely, if the price falls below the 55 EMA, it suggests a strong bearish trend and low asset demand.

Forex Trading Strategies Using 3 Moving Average Crossover

Follow these tips to enhance your forex trading strategies using 3 moving average crossovers:

• Trade according to the trend: In an uptrend, look for bullish crossovers, and in a downtrend, look for bearish crossovers.
• Use multiple timeframes: Confirm the trend and signals by using multiple timeframes. For instance, use the daily chart to identify long-term trends and the hourly chart to determine the best entry points.
• Use technical indicators: Use other technical indicators to supplement the signals from the EMAs. You can consider volume, RSI, MACD, Fibonacci retracements or candlestick patterns to confirm the validity and strength of the signals.
• Set stop-loss and take-profit levels: Set your stop-loss and take-profit levels based on the EMAs. You can use the 9 EMA as a trailing stop-loss level and the 55 EMA as a target level.

3 Moving Average Crossover Trading Example

An example of how the 3 moving average crossover strategy works is illustrated with the EUR/USD pair on an hourly chart. Assuming the price currently sits above the 55 EMA, suggesting a long-term uptrend. As the 9 EMA crosses over the 21 EMA and then the 21 EMA crosses over the 55 EMA, this signals a bullish crossover and a potential entry point. The price then breaks above a resistance level and forms a bullish engulfing candlestick pattern, which confirms the signal. The price keeps rising and remains above the 9 EMA, indicating that buyers are still in control and that there is upward momentum. The price reaches the 55 EMA on the next higher timeframe (4-hour chart), which acts as a target level and a potential exit point.

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Supercharge Your Trading: 3 Moving Average Crossover Strategy

The triple moving average crossover strategy is a potent tool in forex trading, allowing traders to spot likely entry and exit points based on market trends. This strategy involves tracking the 9-, 21- and 55-period EMAs, each revealing a different aspect of price behavior and market trends. Traders must remember to trade according to the trend, confirm signals using multiple timeframes, use supplemental technical indicators and set appropriate stop-loss and take-profit levels. The trading strategy is an effective way to gauge the market's direction and strength, providing valuable insights to enhance forex trading performance.

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