Improving Probabilities Of Moving Averages by Becky Hayman

Using a moving average indicator is a commonly used technique in trading. Available on most trading platforms, the moving average does what its name implies: it gives an average of the price value of a pre-defined data set, moving as price moves. For example, a 9-point moving average will give you the average of price over the last 9 candles, where the current candle is of course moving; therefore the average will be moving slightly, taking into account the average price value over the previous 8 candles as well. Here’s what it looks like on multiple platforms:

Every trader will have a way they use this indicator. A very common application is the following:

• If price is above the Moving Average, then comes down to touch it – BUY
• If price is below the Moving Average, then comes up to touch it – SELL

At TRADDICTIV, we combine this methodology with our patented AutoUFOs®. Our UFOs show us where lots of buyers and lots of sellers are. The theory is that by buying with lots of buyers, we increase our probability that price goes up from there. If we sell with lots of sellers, we increase our probability that price goes down from there. If combined with another indicator, in this case the Moving Average, if price is above the Moving Average, we buy at a UFO that also aligns with the moving average price. If price is below the Moving Average, we sell at a UFO that also aligns with the moving average price. By buying with buyers in the UFO, as well as buying with buyers who come in at the Moving Average, we increase our probabilities. By selling with sellers in the UFO, as well as with selling with sellers who come in at the Moving Average, we increase our probabilities. Here’s a few examples:

Swing-position stock trade:

The Moving Average price on the bigger timeframe is 53.67, and price is below the Moving Average. This means we look to sell. On the smaller timeframe, we have a Red UFO (indicating many sellers) between the prices of 53.50 and 53.93. 53.67 falls nicely between those numbers. So the UFO and the Moving Average are lining up, which increases our probabilities.

Another example, using shorter-term timeframes, day trading Futures:

The Moving Average price on the bigger timeframe is 0.7526 and price is below the Moving Average. This is another example of looking to sell. On the smaller timeframe, we have a Red UFO between the prices of 0.75255 and 0.75275, meaning 0.7526 falls in between those numbers and therefore the UFO and the Moving Average are lining up, which increases our probabilities.

A final example, using Forex and a swing trading example:

In this example, the Moving Average is 0.9273 and price is above the Moving Average, meaning that we would look to sell. In this example, we have a green UFO (indicating many buyers) between 0.92775 and 0.92592, so the Moving Average price of 0.9273 is between those two numbers, the UFO and Moving Average align, and therefore probabilities are higher.

The beauty of trading is that there are many ways to do it, and many ways to use indicators, individually or combined with others, to increase probabilities. Combining indicators with UFOs is something we teach at TRADDICTIV, as well as using other indicators and methodologies to increase our probabilities. By going to www.tradewithufos.com/becky you will be able to check out our apps (some of which are free), courses and free resources.

Becky Hayman
TRADDICTIV·Team