In this Boom and Crash Strategy, we will be employing the services of these very important moving averages. We will use them to interpret Boom and Crash market movements and capitalize on opportune moments where we can take profitable trades.
We will use Simple & Exponential Moving Averages.
You may use these lines on SMALLER time frames but remember there is always more price noise on smaller timeframes than higher timeframes like H4 and D1.
So these are the moving averages for your Boom and Crash Trading Strategy:
- 5 EMA (This is the Support & Resistance Line on Daily Timeframes)
One can see that on the daily timeframe 5 EMA picks out the wiggly support and resistance lines at the edges of the candlesticks. Using 5 EMA on smaller time frames (that is, ones below D1 and H4) creates noise and distorts better support and resistance detection).
2. 21 EMA (This is usually our reversal point line on Daily Timeframes)
21 EMA is the line for most pullbacks. Prices usually take short-term turns around this line zone. If you like to trade around retracements briefly, this should be your best line. Be observant of this.
3. 50 SMA (This is your Buy-The-Dip Level on Daily Timeframes)
After the market has had a strong trend in one direction either bullish or bearish for a while, its retracement levels mostly happen at the 50 SMA level. These are dipping points after strong trends.
So after a market buys for long, it tends to sell and bounce off the 50 SMA line and rebuys and the opposite is true for selling trends.
4. 100 SMA (2nd Buy-The-Dip Level on Daily Timeframes)
The 100 SMA comes in as the second point for buying the market dip after the 50 SMA fails to serve as a bounce-off support or resistance.
The 100 Simple Moving Average is acting as our help after the 50 SMA fails to hold the price.
5. 200 SMA (3rd and last Buy-The-Dip Level on Daily Timeframes)
The 200 SMA comes in as the third point for buying the market dip after the 100 SMA fails to serve as a bounce-off support or resistance.
This is our last resort to buying dips after the strong trend in one direction. We are therefore seemingly only taking three major points as our buy-the-dip points; 50,100 and 200 (3 trades) and we are good to go with buying dips.
Here is a figure of all our Moving Average lines.
To get a much more pictorial understanding, I have shared a video below.
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Thank you for reading!😊