100 Moving Average Strategy

The moving average is one of the most important forex trading indicators that you can use to identify the direction of the market as part of any forex strategy. Some traders use it for entry and exit points with a moving average crossover, others use it to decide if they will look for long (buy) or short (sell) traders depending on the trend direction and might enter on a moving average breakout. Here I will take a look at one of the 100 moving average which is considered one of the most important which means that it is followed by many traders and can therefore be very helpful.

What is the 100-moving average?

The 100 moving average is a trend following indicator which calculates the average price over the last 100 days or 20 weeks. It represents price trends over the mid-term. If you want to trade with the trend, then you might consider looking for buying signals when the price is above the 100-day moving average and selling signals when the price is below it.

Moving averages can help to give you an overview of the market sentiment. If the currency pair price is trading above the 100-day average, the market can be said to be bullish. If the price is trading below the moving average, it is a bearish market.

How to calculate the 100-day moving average?

Calculating a moving average is pretty simple once you know how to do it. You just need to add up the closing prices of all the days (day 1+day 2+ day3…day n) and then divide the sum by the number of days. Therefore, for 100 days, the MA value of n will be 100.

If this sounds too complex, don’t worry. The moving average is a free technical indicator that will be calculated automatically in your trading platform when you attach it to your charts.

How to trade the 100 moving average strategy?

As mentioned above, the main way to use the 100-period moving average is to look for buy trades above the 100 SMA and sell trades below the 100 SMA. You can use price action analysis and other technical indicators to time the entry such as the stochastic oscillator.

The triple moving average crossover is also another way to use the 100-moving average. You could also add a 50 SMA and 200 SMA to look for signals when all of the moving average agree on the currency pairs trend. I find these extra filters can help to confirm a signal and remove some false signals. However, it can also mean we miss some trades because the indicators can be lagging although we cannot catch them all.

Some forex traders also use the 100-day MA as support and resistance levels. In this instance they may set up their limit orders to buy a currency pair when prices breach the level of support that lies on the moving average over 100 days before it bounces off the MA trend line.

What 100 moving average settings are best?

You can use the 100 moving average trading strategy on any chart timeframe or currency pair. I find the major currency pairs such as the EUR/USD and GBP/USD can have some nice trends as they are some of the most actively traded and therefore usually have lots of liquidity.

In terms of chart timeframes, I would prefer to trade on the 1-hour charts and above. There can be quite a lot of market noise on the lower chart timeframes such as the 1-minute charts which leads to more false signals and losses. Using longer term chart timeframes also means that we need to spend less time chart watching.

100 moving average strategy buy signal

  • Price is above 100 SMA
  • Stochastic +DI is above -DI
  • Price breaches resistance
  • Bullish candlestick patterns

You can see from the EUR/USD 1-hour chart below that the price is above the 100-period moving average and the stochastic crossover has occurred to the upside below the overbought zone. Price then makes a break through the resistance level whilst we have bullish candlestick patterns including an engulfing bar. We could have placed the stop loss just below the recent swing low which would have been around 50 pips. This uptrend went over 270 pips which would have been the ideal exit point. Obviously, it is very hard to know exactly when price will turn around but even taking an exit when price crossed back down below the 100 SMA would still have been around 150 pips giving us a respectable 1:3 risk to reward ratio. You will see that there were ample opportunities to get in on this uptrend when the stochastic crossover kept occurring.

100 Moving Average Strategy Buy Signal
100 Moving Average Strategy Buy Signal

100 moving average strategy sell signal

  • Price is below 100 SMA
  • Stochastic +DI is below -DI
  • Price breaches support
  • Bearish candlestick patterns

In the EUR/USD 1-hour chart below, you can see that the price is below the 100 SMA and we have really strong support that has been tested a few times. The stochastic is almost oversold in this sell signal setup, but because the support level has been so strong, I would have been happy to place a pending sell order just below support. As you can see, once price breached the support level below the 100 SMA, it went down quite significantly. We had plenty of confirmation with candlestick patterns including the hanging man and shooting star. The stop loss could have been just above the 100 SMA at around 30 pips. This is relatively tight when you consider price went down over 400 pips. An exit when price crossed the 100 SMA to the upside would have been around a respectable 280 pips.

100 Moving Average Strategy Sell Signal
100 Moving Average Strategy Sell Signal

Advantages of the 100 moving average strategy

  • Catch some big market moves
  • Can be used on any currency pair
  • Can be used on any chart timeframe
  • Easy to interpret the trend direction
  • MA indicator is free to used
  • Can be combined with any other indicators

Disadvantages of the 100 moving average strategy

  • There will be false signals
  • Indicator can be lagging
  • Trades need extra confirmation
  • Requires discipline and good money management
  • Can be more infrequent trading signals

Conclusion: is the 100 moving average forex strategy any good?

Yes, I think the 100-period moving average is a great addition to any forex strategy. Whilst I wouldn’t personally use it on its own, I find that it can do a good job of filtering trades. The 100 SMA can be used to see if we will be trading short when the price is below it, or trading long when price is above it. We can combine it with other indicators and try to get into a currency pair trend at the ideal entry point.

However, like any forex strategy, the success rate is most likely going to depend on the forex money management being used. It is quite common to see the exact same forex strategies give a completely different set of results simply because they are using different stop loss and take profit levels. I would be looking to cut bad trades short and let winning trades run. I might move stop loss to breakeven to protect good trades and use a trailing stop to try and maximise each trend move. It can be very frustrating to see one bad trade wipe out a run of winners.

If you want to give the 100 moving average forex strategy a try, you could always start on a demo account to begin with and see how things go. You can get a free forex demo account from most forex brokers including IC Markets. I find they have some of the best trading conditions for manual and automated forex trading. Demo trading can help you to build up your confidence and practice your trading skills before making any commitment.