Trading Strategy 101 – Using 3 Moving Averages

The trading strategy I am about to share to you is called the "The Big Three" trading strategy. This strategy is going to teach you how to use three special indicators on your charts to find powerful trade entries.

When three highly important entities or group of people get together and work with each other, the results are usually astoundingly great.

So we thought, what better way to prove that to you than to get three entities on your chart to all work collectively together.

Our goal here is to teach you something that works and does not require hours of chart analysis on your part.

With that being said, let's take a look at these three special indicators that will show you some incredible winning trades when you apply them on your chart.

Here are some key details about the strategy that you may want to know before we get started.

Important Details

1. This strategy can be traded on any given time frame
2. This can be used for swing trading, day trading, and scalping
3. This strategy can be traded with any market, such as, Stocks, Futures, and Forex
4. It can be a great addition to your current trading plan

Indicators Used

1. 20 Period Simple Moving Average
2. 40 Period Simple Moving Average
3. 80 Period Simple Moving Average

Please note that this strategy does work the way I am going to show you, however, we get traders sometimes that tell us that they tweaked the strategy that we showed them. This is also fine! We all trade differently. We loving hearing your feedback!

So now let's jump into the key rules of the "Big Three" Trading strategy.

Step 1- Apply Indicators to Chart

Apply all of the three moving averages to your chart like this:

The color depends on your personal preference.
Again these are 20, 40, 80-period Simple moving averages.

After studying the charts and applying many different moving averages, we found these three to work extremely well together for this particular strategy. Which is why we called them the big three 😁.

Step 2- The Trend... Up or Down?

Once your "Big Three" indicators are on your chart, go ahead and find a current up trend or down trend.

To do that simply look at where the price action is and determine if its above the moving averages or below.

If the price is above the three moving averages you have an uptrend:

However, if the price is below the three moving averages then you have a downtrend:

If the market is flat and the price action is not making a new high or low and just staying stagnant like the chart below:

I would avoid this type of market because we are looking for a trending market, not a flat
or "sideways" market.

Step 3- Wait for entire candle to close outside of Moving averages + Pull Back in Price Action + Continuation of Trend

Wait for the price close below lowest moving average in a downtrend:

Or, Wait for the price close above highest moving average in an uptrend:

Once you see this occur, you wait for the price to pull back and then move in the direction of the trend to make your entry. To determine this you can either go to a lower time frame or stay on the current time frame that the entire candle closed completely below or above the moving averages.

The price action does not have to necessarily go back and touch the moving averages (which does occur) but you need to confirm there was pull back in the price and then a continuation of the current trend.

In the example below, you can see that the entire candle closed above all three of the moving averages, pulled back in price action, and then continued upward.

I marked where you could have entered this trade. This was the bullish candle after a candle closed bearish.

The reason that I prefer to wait for a break pullback and go is because statistically, the price will mostly always retrace during a bearing or bullish trend.

For a more risky approach to this strategy, you could technically get in a trade right when the price breaks the highest or lowest moving average but this method may cause more harm than good.

The reason is that not every time it breaks these lines it is headed for a strong up or down trend.

Which is why you need to wait for a FULL candle to close above/below these lines and you wait for a pull back and go to enter the trade.

Take a look at this below:

What happened?

Well, it:
✓ Broke the above the moving average lines.
✓A full candle closed above the lines.
✗ Retracement and the continuation of trend = this did not occur so you would not have entered the trade! It did retrace, however, the price did not continue to go in the direction of the trend.

We need these three elements for the trade to occur…

Which is why we call this the "Big Three" Trading Strategy

Three different steps to find a trade and execute it.

Stop loss/ Take Profit

Place your stop loss Below the bottom moving average line. Depending on what time frame you are in will vary on how large your stop is.

Scalpers (Below One hour chart) may have a tight 5-10 pip stop while day traders/swing traders (One hour time chart and above) will have a 30-50 pip stop

Your take profit is when the price touches the 80-period line. The price crossed this line at +196 pips!
You can tweak this rules as you wish, but we found the best way to push your winners with this strategy was to wait until the price touches the 80-period line.

Conclusion

This strategy is extremely fun to use and trade with. It is not very messy on your chart
because there are only three little lines to look at . These little lines are are actually huge
in value because one the price goes above these lines and the rules are met, then you have
a great entry point. Let us know what you think of this strategy.

Disclaimer

This post is not a professional guide nor do I claim it to be. I just want to share my knowledge to my fellow crypto traders; hoping that this will help them broaden their knowledge in crypto trading. The original source material of this strategy is from www.tradingstrategyguides.com.

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