Apply the Indicators 🔄

Initiate the strategy by applying the 20, 40, and 80 SMAs to your selected timeframe chart, such as 5-minute, 15-minute, hourly, 4-hour, or daily charts. These moving averages act as visual aids, with price action above indicating an uptrend and below signaling a downtrend.

Confirm the Trend 📉📈

After incorporating the moving averages onto your chart, patiently wait for the confirmation of the trend's direction. This confirmation occurs when an asset's candlestick completely closes above or below the SMAs. For instance, in an uptrend, a candle closing above the highest SMA signals a likely continuation of the trend.

Look for the Pullback 🔄📉

Following trend confirmation, keep an eye out for a price pullback accompanied by follow-through in the direction of the prevailing trend. This retracement provides seasoned traders with a lower-risk entry point near support or resistance. Only enter the trade once the retracement concludes, and price action resumes in the trend's direction.

1. Select a daily chart of EUR/USD or your preferred financial instrument.
2. Add the 20, 40, and 80 SMA indicators to the chart.
3. Identify if the price is trading above or below the moving averages to determine the trend direction.
4. Observe the price closing below the 20 and 40 SMAs , confirming a downtrend.
5. The next day, a slight retracement higher provides a potential entry point near 1.0450.
6. Place the stop-loss 10 pips above the 40 SMA at 1.0520 to limit risk.
7. Allow the trade to run as the price continues lower toward the 80 SMA target.
8. On May 17th, as EUR/USD hits 1.0340 where the 80 SMA is, take profits as the strategy intended.

By adhering to these straightforward rules, over 100 pips were captured from this dominant downtrend over 8 trading days.

Set Your Risk Controls ⚠️🎯

Establish protective stop-loss levels beneath the lowest SMA in a downtrend or above the highest in an uptrend. This precaution limits your risk exposure. Consider taking partial or full profits as the price approaches the 80 SMA, which serves as a logical upside target in bull trends and downside target in bear markets.

The Power of Simplicity 🧘‍♂️🔍

The simplicity of incorporating just three indicators streamlines the analytical process. By leveraging the power of trend following and SMA crossovers, traders can gain an edge without resorting to complex indicators or strategies. This approach proves effective across all market conditions and timeframes.

Conclusion 🚀💹

In conclusion, the Big Three Trading Strategy distills trend trading to its purest form. By respecting trends, waiting for pullbacks, and managing risks with clearly defined stops and targets, traders can harness the cumulative power of these three venerable moving averages for consistent and profitable results. Keep it simple yet strategic. 🚀💹


Some Frequently Asked Questions.

Yes, you can experiment with different types of moving averages like exponential or smoothed. However, simple moving averages are preferred as they are less lagging and more sensitive to recent price action.

This strategy can be applied to any time frame, from very short term like 5-minute charts all the way up to daily and weekly charts. Most commonly it's used on the hourly and 4-hour charts for day trading.

Look for the asset's candlestick to close clearly above or below the moving averages, depending on the trend direction. Only enter on the close of a candle to confirm the pullback is over and the trend is resuming.

Yes, the Big Three strategy can be used on any liquid market that trends, including stock indices, individual stocks, commodities, and cryptocurrencies in addition to forex major pairs. The principles remain the same.

A good rule of thumb is to keep your stop 10-20 pips below the lowest SMA for sell entries, and above the highest SMA for buy trades. The distance can vary based on volatility, so adjust as needed for your risk tolerance.

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