Definition and Example
How the system works
How to use the system
Definition and Example
The moving average bounce trading system surpasses short-term highs and lows to find the overall trend of the stock. It tracks “bounces” to find opportunities for a winning trade when the stock moves back and forth in a trending direction.
How the system works
The moving average removes short-term fluctuations from the chart line, revealing the general trend and investment direction. This moving average bounce trading system utilizes this bounce.
How to use the system
This method can and should be used exactly as outlined in any market you trade in. The system is used in this tutorial for long trading, using one contract, a target of 10 points, and a stop loss of 5 points.
1. Open a one-minute OHLC chart for your market.
2. Add a 34-bar exponential moving average of the typical price HLC (high + low + close divided by 3), also known as the “HLC average”.
3. Wait for the price to move away from the moving average. There is no standard distance that the price should move, but the price bars should not touch the moving average. In this example, the distance is about 10 points.
4. Wait for the price to reverse and start heading back toward the moving average.
5. Wait until the price touches the moving average, which happens when the price trades at the current moving average price. For a long trade, the previous price bars should have been making lower lows as the price approaches the moving average, and for a short trade, the previous price bars should have been making higher highs as the price approaches the moving average.
6. Enter your trade when the next price bar breaks above (or below) the last bar that failed to make a new low (or high). For the long trade, follow these steps: the price bars are making lower lows. The price bar touches the moving average. The next price bar fails to make a new low. The next price bar breaks above the previous price bar. If you are going to enter a short trade: the price bars are making higher highs. The price bar touches the moving average. The next price bar fails to make a new high. The next price bar breaks below the previous price bar.
7. Wait for the price to trade at your target or stop loss and until your target or stop loss order is filled. The moving average bounce trading system can take a few minutes to a few hours to reach your target or stop loss, and trading does not involve any adjustments to the target or stop loss (except for moving the stop loss to breakeven in a timely manner).
8. Repeat the trade from step four multiple times until you reach your daily profit goal, or until the market stops being active.
Source: https://www.thebalancemoney.com/moving-average-bounce-1031474
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