How to use the 100 days moving average like the professional trader

There are many ways of trading the financial means in the world. Trading strategies and techniques will greatly vary from trader to trader, as it often depends upon the trader’s personality. However, some of the new traders in the financial market often think that this vast online market can easily be traded with other people’s trading strategies. Things are not at all simple in the real world. You may buy a million dollar trading strategy with a winning ratio of more than 80% – if you don’t know how to control your emotions, you will never succeed in this industry. Most importantly the trading system, which you will be using, needs to be developed based on your own personality. In today’s article, we will discuss 100-day moving average trading strategy, which is widely used by the professional traders all around the world.

100-day simple average

Before we jump into the details of this trading strategy, let’s discuss the basic functionality of the 100-day moving average. The 100-day SMA is nothing an indicator, which works based on the 100 last candlesticks. The average of the 100-day price movement is represented in the chart, which acts as the dynamic support and resistance level of the market. Most of the time the novice traders use the 100 periods moving average in the lower time frame and thus lose a huge amount of money. But in order to get the best trading result by using the indicators, you need to use it in the higher time frame. The 100-day SMA provides the traders with dynamic support and resistance level, which allows the traders to execute their trade with an extreme level of precision. Both long term traders and scalpers can use it in a diverse way and make a huge profit on the financial market.

Scalping system

The scalping system is one the toughest strategy in the financial market. Many traders in the online trading world try to scalp the market with a big lot size and ultimately lose a huge amount of money. But the professional scalpers use the 100-day moving average in a very simple way and make profit consistently, by setting up pending orders in the dynamic support and resistance level

Figure: Simple way of trading the dynamic support level in the market

 

In the above figure, the professional scalpers in the financial market wait patiently for the retest of the dynamic support level. Once the market hits the 100-day SMA, they wait for the candle closing. If the price of candle closes above the 100-day SMA, they simply execute their long orders with a light stop loss just below the low of the previous candle. In general, they use 20 – 30 pips to take profit, while using this system on the daily time frame. However, some aggressive traders often set pending orders at the dynamic support and resistance level. Though this system is profitable, the winning ratio is a little bit lower in the aggressive trading system. For instance, if you set the pending orders in the second green shaded region in the above chart, your trade will be hunted by the market’s wild swings. But you were 100 percent right, the market did shoot up, but due to your aggressive trading system, you would lose money in that trade.
Some professional traders often use the price-action-confirmation signal at the dynamic support and resistance level to execute their trade. According to some of the professional traders, using the price-action-confirmation signal is one of the best ways to filter the best trades. And when you use the price-action-confirmation signal, you can use tight and precise stop losses, and look for more than 100 + pips in each trade.

Long term trading method

The 100-day simple moving average is also used by the long-term traders. To be honest, this is one of the best ways to identify the long-term existing trends and trade in favor of it. The idea behind this long-term trading strategy is very simple. If the price trades above the 100-day SMA, we consider the market in an uptrend, and if the price trades below the 100-day SMA, we consider it as a downtrend. Based on the market trend we look for a potential trading opportunity at the key support and resistance level.

Let’s see a long term trade setup:

Figure: Perfect long trade setup at the 100 day SMA

In the above figure, you can clearly see that initial trend was a downward trend since the price traded below the 100-day SMA. But as soon as it breaches the dynamic resistance level, the overall trend of the USDCAD pair turned bullish. The professional price action traders then waited patiently for minor retracement of the price near the key support zone. But when you look for bullish price-action-confirmation signals, make sure that your support zone is just near to 100-day SMA or else you will have a losing trade in the market. The black circle is a classic example of bullish trade setup where the support zone coincides with the 100 dynamic support level.
When you trade the market in the longer time frame with such trading strategy, make sure that you use precise stop loss using the price-action-confirmation signal. Though it’s extremely simple and profitable, you should never risk more than 3 percent of your account capital in a single trade.

Summary

The 100 SMA is one of the best tools for the professional currency trader. You can easily scalp the market by using the pending orders or wait for the long-term trade setup by following the steps of this article. No matter what type of trading strategy you use, always trade with low-risk exposure and never expect winning trades in all time. Be mentally prepared to embrace some losses as it is just a part of the trader’s life.