Use the moving average to set a stop loss to improve the trading effect

In the field of technical analysis, moving averages are often used to assist trading decisions and help grasp market trends. However, many investors have suffered losses in practical application. What is the reason behind this? Let's explore together.

I have been exposed to foreign exchange trading for more than a year. During this time, I have invested a lot of energy in technical analysis methods, hoping to find a relatively stable trading strategy. After continuous exploration, I found that the moving average is a rather useful tool. It seems simple, but it provides an effective reference in the trading process. For example, in a previous EUR/JPY trade, the daily chart showed that the exchange rate effectively broke through the 5- and 10-day moving averages, and the 5-day moving average crossed the 10-day moving average to form a golden fork. This pattern usually implies that short-term market sentiment may change from idling to long, which is easy to trigger stop-loss orders, thus promoting the continuation of the market. Therefore, I took advantage of the trend to buy at 120.78 and set a 100-point take-profit and a 40-point stop-loss. The subsequent exchange rate rose in the direction indicated by the moving average, and finally successfully reached the take profit target.

But not every operation has been so smooth. Once, when looking at the 1-hour chart of the GBP/USD, I saw that the 5-hour moving average rose and formed a golden cross with the 10-hour moving average, so I followed up at 1.7319, setting a 120-point take profit and a 60-point stop loss. However, the market did not develop as expected, and the exchange rate not only triggered the stop loss, but also moved in the opposite direction for a considerable distance. When I looked back, I found that the daily chart at that time had actually sent a different signal - the 5-day moving average and many long-term moving averages were in a short arrangement. After this experience, I deliberately avoided using the hourly chart for analysis, but the effect was still not satisfactory. Later, in a conversation with a friend who is experienced in trading, he shared his own case. He mentioned that he had bought the dollar against the yen according to the daily chart signal and set a small take-profit and stop-loss, but the exchange rate quickly reversed after entering the market. At first, he also doubted the effectiveness of the moving average, but after in-depth research, he realized that when making a long-term layout, you should focus on the daily, weekly and even monthly charts; while for short-term trading, you need to comprehensively observe the minute chart, the hourly chart and the daily chart, so as to more comprehensively evaluate the market state. Our previous losses were largely due to the failure to comprehensively analyze charts of different time periods according to the trading cycle. For traders who want to improve the depth of analysis, you can refer to some professional tools, such as the market data and analysis resources provided by ebc foreign exchange, which may bring more dimensional perspectives.