Trading is about making decisions. Decisions related to choosing an asset, technical tools or the length of the position. A trade’s duration very much depends on individual preferences and experience. But what are the advantages and disadvantages of holding a position open for a short or a long time?
Firstly, short-lasting positions are risky because even very small price movement may influence the outcome. When your trade supposedly lasts only a minute, it is highly probable that just a 2-second fluctuation will ruin your result. But when a trade lasts 5 minutes, it is very much less likely to happen.
Secondly, trading short positions makes it harder to analyze the market properly. Not only you have less time for a decision, but also the price movements occur more frequently.
These are two reasons why I would recommend trading longer timeframes, especially for beginners. Now, I do not want to promise you will be always successful if you only trade long-lasting positions. However, you will greatly increase your chances. You can do even more to bring forth higher profits. You can apply valuable strategies like the one I am going to discuss in this article. It will combine the Simple Moving Average with support and resistance levels.
How to attach the Simple Moving Average to the chart
The Simple Moving Average (SMA) is an indicator that follows a trend. Its calculations are based on the average price of the underlying asset during a certain period of time. It cannot be used on its own to predict the future course of the price. The SMA is calculated from the previous periods, and thus, there is a delay.
Once you are logged into your Binomo account, choose the instrument you want to trade. Then hit the chart preferences feature icon – there you can find indicators and drawing tools. You will find Moving Average on the list of indicators available on the platform.
Now, you can choose to change some of the indicator’s parameters. Set the period to 10 and the type should be set to “Simple”. You may also change the color of the indicator’s line. When you are done, hit the “Apply” button.
For today’s strategy, we will need to attach two SMAs. One with a period of 10 and the other with a period of 30. You must repeat the above steps. Just remember to choose the value of period 30 with a different color, so they can be easily distinguished on the chart. I will use yellow color for the second SMA.
Support and resistance levels on Binomo
As I mentioned in the beginning, you will also need to draw the support and resistance lines. Click on the chart preferences icon again. This time select the “Tools” tab. Then, choose “Segment”. With this tool, you will be able to connect a few lows or highs to draw the support and resistance lines.
Combination of the SMA10 and the SMA30
You can draw some conclusions simply by observing the two SMAs you have previously attached to your chart. You need to look for the moment they cross each other.
Whenever the SMA10 crosses the SMA30 from underneath and continues over it and the gap between the two lines widens, an uptrend develops.
When the SMA10 crosses the SMA30 from the top and runs underneath it and the gap is widening, a downtrend develops.
The SMA10 and the SMA30 may also cross each other often over a short period with the gap not widening. This is a clear signal of the market going sideways.
These are the conclusions you can draw just by observing the two lines of the SMAs. But to decide when exactly get into a trade you will need to add the support and resistance levels.
Using the SMA10 and the SMA30 together with the support and resistance levels
Your chart should be set for at least 5-minute candles. We have already established that you should avoid opening short transactions. 1-minute candles will show too many price fluctuations. With 5-minute candles, you will have a chance to enter a trade that lasts 30 minutes or longer.
Opening a short position on Binomo
Look at the example below. You can notice the price broke out of the support level and continues downwards. At the same time, the SMA10 crosses the SMA30 from the top and continues beneath it. The gap begins to widen. This is a confirmation that a downtrend is developing and you should open a short position. You can hold it open for at least 30 minutes.
Opening a long trade on Binomo
There are two good entry points marked on the exemplar chart below. Wait for the price to break out of the resistance level. Observe the SMAs lines. When the SMA10 intersects the SMA30 from beneath and continues above it and the gap starts to widen, this is a good time to go long. Again, the trade should for last at least 30 minutes.
Summary
Two Simple Moving Averages with the periods of 10 and 30 can tell you when a trend is developing. It is quite enough to conclude there is a particular direction when they cross each other and the space between them is widening. Whether it is a downtrend or an uptrend, depends on the position of the lines.
When you add the support and resistance levels to the SMAs, you will get good signals to enter the trade. Avoid short-lasting transactions. The best solution is to set the candles for a 5-minute period and hold positions open for at least 30 minutes.
You have just learned about the strategy combining the SMAs and the support and resistance and you should now try it for yourself. The best place to do this is the Binomo demo account. Tell us how you like trading with the SMAs and the support/resistance levels.
Enjoy the trading!