There is a trend following tactic which I believe has great potential for the average market participant. It involves a moving average and signals an entry as price bounces off it. I want to take the time to explain the concept to you here and experiment with it live in the coming months. The performance will be published regularly so that we will see if it’s a viable approach.

The strategy is simple to set up and you will only need a basic charting package to get started. By using an influential moving average in several time frames, we get a good read of the market. The way I have my charts configured for this experiment is as follows:

• A monthly, weekly, daily chart with an 200 exponential moving average (EMA) in each. These three time frames will serve as orientation and show at which zones our attention is needed.
• In addition, we need an intraday chart such as the 1H or 4H time frame which gives the necessary precision in trade entries.

Note how the price basically bounces from the EMA in one time frame to another. Without this, we would float in a sphere of tremendous lack of orientation. Some understanding of price action is required to take the actual trades, but is otherwise very straightforward.

Take the AUD/USD currency pair for example. See how price has approached and penetrated the 200 EMA from below in the daily chart (bottom left), and is now on the verge of a turnaround. We take this bounce as a potential short entry and switch to the intraday chart (bottom right) to find a confirmation therein. A break of this visible support level at 1.014 would confirm the bounce and we go short. A stop-loss order to limit our risk would be set to a visible high created in the daily or intraday time frame.

With the moving average bounce strategy, you are looking for the price to fall toward the EMA and then make a rapid move upward away from it for a long entry. For a short entry, you want price to move downward away from the EMA. It is common to see the price briefly penetrate the EMA, since there are many market participants involved. But what follows is often a noticeable bounce.