Study Guide for Come Into My Trading Room - Forex Factory

INDICATORS—FIVE BULLETS TO A CLIP 103
The slope of an MA shows whether bulls or bears are in control. The
shorter an MA, the more “whippy” it gets. Position traders should average
closing prices, but day-traders can average high, low, and close.
Exponential moving averages, unlike simple ones, are not distorted by
dropping off old data. A moving average shows the average consensus
of value, and buying near the MA means buying value.
Answer 28
1. I
2. A, L
3. E, G, H, J
4. D, F, K
5. M
6. B
7. B-C
Give yourself a point for each correct answer (half a point if you missed
one of several occurrences). Add two points if you got the bonus question
right, or a point for getting it partly right.
Upturns and downturns of a moving average identify trend changes;
these are the most important messages of an MA. Buying at a rising
EMA (exponential moving average) means buying value, whereas chasing
rallies leads to greater fool theory trades—overpaying and hoping
that a greater fool will pay even more down the road. The letter L identifies
a downtrend. Shorting in area M means shorting value, expecting
to cover below value. The kangaroo tail B serves as the first low of a
double bottom; prices try to grind down into that area but fail, and a
strong rally ensues.
At the right edge—bearish. The trend is down, identified by the EMA,
which is pushing lower. The shorting signal M is still in effect. Keep a stop
above the previous week’s high because if prices rise above it they will
complete a minor double bottom, including a false downside breakout,
and the EMA will turn up.