WEBVTT 0 00:09.180 --> 00:15.480 How to use the moving average with the candlesticks? We have already seen three ways to use the moving 1 00:15.480 --> 00:16.320 average. 2 00:16.320 --> 00:20.540 But we are not going to use the crossover with the candlesticks. 3 00:20.550 --> 00:26.700 I think that the crossover is a good way to analyze the trend in the long period, especially if you use 4 00:26.700 --> 00:28.940 it on daily and weekly charts. 5 00:29.010 --> 00:35.610 But in my experience the crossover method doesn't add much value to Candlestick analysis, because the 6 00:35.610 --> 00:42.080 crossover appears when the trend or the retracement is already started and with the candlestick patterns 7 00:42.090 --> 00:48.430 we usually try to understand from the very beginning when a new trend or a retracement is happening. 8 00:48.840 --> 00:55.560 So in this chart we have pound-dollar, 4-hour is the timeframe and I have added a simple moving average 9 00:55.740 --> 00:59.000 with a period of 100 candles. 10 00:59.040 --> 01:05.640 First of all, we can divide the charts in two parts with this vertical dashed black line. In the first 11 01:05.640 --> 01:12.760 part, we have a clear uptrend with the candles that are over the simple moving average. Then there's 12 01:12.780 --> 01:17.370 a break of this moving average and the price starts to go down. 13 01:17.460 --> 01:23.610 So we can see that in the second part of the chart we have all the candles below the moving average. 14 01:23.700 --> 01:26.130 So we are in a downtrend. 15 01:26.250 --> 01:32.460 This can be a good tool to analyze the trend on the market and select your trades according to the market 16 01:32.460 --> 01:33.730 direction. 17 01:33.780 --> 01:36.330 Of course you don't want to open short positions 18 01:36.330 --> 01:42.690 if the price is in an uptrend and you don't want to open long positions if the market is in a downtrend. 19 01:43.350 --> 01:47.370 Then we can use the moving average as support and resistance. 20 01:47.460 --> 01:54.910 You can see that the price touches the moving average here and here before continuing its uptrend. 21 01:55.200 --> 02:00.990 When the price is close to the moving average, you can start to look for candlestick patterns that confirm 22 02:00.990 --> 02:02.280 the trend. 23 02:02.280 --> 02:06.800 So in this case we have a bullish engulfing pattern on the moving average. 24 02:06.840 --> 02:10.410 It is a very strong bullish signal. 25 02:10.410 --> 02:17.130 Here there isn't a clear signal to buy the couple. We have a hammer here, but it is quite small compared to 26 02:17.130 --> 02:18.430 the previous candles, 27 02:18.480 --> 02:21.230 so I wouldn't have taken that one. 28 02:21.480 --> 02:28.230 I'm particularly risk averse so I try to avoid situations that are not so clear to me but maybe another 29 02:28.230 --> 02:35.400 trader could have opened a long position after the hammer and see what happened in next sessions. 30 02:35.400 --> 02:41.940 In this example I have used a 100 simple moving average because it has a smoothing effect and it is easier 31 02:41.940 --> 02:43.270 to analyze. 32 02:43.320 --> 02:49.710 So if you're getting familiar only now with candlestick patterns and moving average, I suggest to use 33 02:49.710 --> 02:53.040 100 or 200 as a period. 34 02:53.370 --> 03:00.500 I show you what happens if you choose 24 as a period and you will understand why it is harder. 35 03:00.540 --> 03:10.440 So insert and indicators. Trend and moving average and 24 as a period and I want to get at 36 03:10.440 --> 03:18.600 least an exponential moving average because I have a short period. It is in a way more accurate but price 37 03:18.600 --> 03:24.900 will break more easily the moving average and you will get a lot of situations where you need to analyze 38 03:25.170 --> 03:32.100 deeply the market structure to understand if it is a real break or just a temporary retracement from 39 03:32.100 --> 03:33.700 the main trend. 40 03:33.720 --> 03:40.200 Now I don't want to be vague just saying that you can be always right if you study deeply the market 41 03:40.200 --> 03:41.620 structure. 42 03:41.760 --> 03:47.910 There are traders that say that they know exactly when it is a false breakout and that they are almost 43 03:47.940 --> 03:53.800 100 percent of times right about their decisions based on the moving average. 44 03:54.030 --> 04:00.960 I honestly don't believe that. The reality is that sometimes it will happen to lose your position because 45 04:00.960 --> 04:08.460 the market doesn't always follow your analysis. It is something that you need to accept whether or not 46 04:08.460 --> 04:13.540 you trade with the moving average. You can see that in this first part, 47 04:13.540 --> 04:20.730 you would have a lot of tough decisions to make and it is normal to get caught in some bad decisions 48 04:20.760 --> 04:22.450 that will cost you money. 49 04:22.830 --> 04:29.610 But in this second part, the moving average acts perfectly as a resistance and I'm sure that traders 50 04:29.670 --> 04:34.340 that use the moving average made a lot of money from this scenario. 51 04:34.350 --> 04:40.710 The best thing about Forex trading is that you can always go back in the past with the chart and analyze 52 04:40.710 --> 04:46.890 what settings work better for you and help you to take the best decisions on the markets. 53 04:47.160 --> 04:53.840 So you analyze past charts and see that the moving average with 24 candles doesn't work for you, 54 04:53.880 --> 04:59.700 you can have a look at one hundred period then or you can switch to another type of moving average.