The Buy Zone – Knowing Where To Buy And Sell
Craig Cobb of the TraderCobb
Crypto Show has been investing since he was 16 years old. Before
entering the world of crypto trading, Cobb worked in traditional stock
markets, FX and commodities and bonds. If you’ve ever dabbled in the
trading world, chances are you’ve heard about moving
averages. But what are they for? In this article, I want to take you
through how moving averages work, and how I’ve used them in
relation to price over the last 14 years of my trading career. But in
order to understand the purpose of moving averages, we must first
figure out how markets work. Everyone has their theories when it comes to
predicting market movements. Some rely solely on their gut or
feel, while others prefer to just scan Twitter. Most accomplished traders,
however, utilize simple but logical methods to gain high probabilities of
winning trades. It doesn’t matter whether you are a trader or an investor. As
long as your goal is profitable trades, the principles remain the same.
Furthermore, they work on any timeframe, from the hourly to the daily, and all
the way up to the weekly and monthly charts. Now, you might wonder, is the
“moving average” a magic indicator? The answer is no.
Moving averages merely help you understand markets because
they are a “simple moving average of price,” hence the name. When
it comes to trading or investing, many people tend to forget how
important price is. Moving averages are simply price measured by
time. Therefore, they illustrate a factual piece of information about
buyers and sellers over that period of time, which makes it reliable. As
a trader who uses checklist-based trading strategies, I look for a
confluence of events to occur before I put any money into the
market. It doesn’t matter if I go long or short, or whether I trade spot,
margin or futures. I follow the same objective strategy every time. I use these
moving averages as equilibrium points: a point at which I see the
market as being fair value. Essentially, I wait for the market to trend, and
then pull back into the cradle zone. The cradle zone is an area in
between a 10-period exponential moving average and a
20-period exponential moving average — and it is a
zone. It’s not an exact science. I call it a cradle zone because it’s a
comfortable place for the price to move from. That move could either be upwards
or downwards. The point is that it gives me a better understanding of the next
potential move and as traders, we always aim to get direction and timing right.
However, this does not mean that there will be an opportunity, nor is it a good
enough reason for me to trade. But it is one of the ingredients that I use. In
fact, I challenge you to go to any chart you like that is trending or has
trended and input two exponential moving averages: a 10- and a
20-period exponential moving average. You can place them on any
timeframe you like and watch what happens when price pulls back into those
areas. You will note that it is somewhat an equilibrium point in good trends.
Some people use moving averages for crossovers, which I don’t get.
The price actually moves before the averages move. That’s why they’re a
moving average of price. Price comes first, then the “averages” follow
what price has done. A golden cross is complete and utter nonsense for
predicting further moves higher. All it does is tell you that the price has
already gone up. If you are trading off this single ingredient alone,
then you need to know that you need more. The dead cross, on the other hand,
tells you that the price has already gone down because it is using the 50-period
moving average, which is the last 50 candles crossing with the last 200 candles.
What I’m trying to highlight here is that these indicators lag price. They’re a
lagging indicator, which makes them unreliable for predicting future movements
and therefore by themselves are not enough to trade from with any margin of long
term success. You see, price action tells you what’s going on and everything
else is simply derivative of price. Therefore, it needs to be the most important
element on your chart. The indicators are only there to help confirm or deny
potential opportunities for your trading or investing. And that’s how I use
moving averages. They’re an essential part of my trading strategies, but they
need to coincide with other events before I consider placing a trade. If you
want to see a video of exactly how I use them, you can watch below:
Craig Cobb of the TraderCobb
Crypto Show has been investing since he was 16 years old. Before
entering the world of crypto trading, Cobb worked in traditional stock
markets, FX and commodities and bonds. If you’ve ever dabbled in the
trading world, chances are you’ve heard about moving
averages. But what are they for? In this article, I want to take you
through how moving averages work, and how I’ve used them in
relation to price over the last 14 years of my trading career. But in
order to understand the purpose of moving averages, we must first
figure out how markets work. Everyone has their theories when it comes to
predicting market movements. Some rely solely on their gut or
feel, while others prefer to just scan Twitter. Most accomplished traders,
however, utilize simple but logical methods to gain high probabilities of
winning trades. It doesn’t matter whether you are a trader or an investor. As
long as your goal is profitable trades, the principles remain the same.
Furthermore, they work on any timeframe, from the hourly to the daily, and all
the way up to the weekly and monthly charts. Now, you might wonder, is the
“moving average” a magic indicator? The answer is no.
Moving averages merely help you understand markets because
they are a “simple moving average of price,” hence the name. When
it comes to trading or investing, many people tend to forget how
important price is. Moving averages are simply price measured by
time. Therefore, they illustrate a factual piece of information about
buyers and sellers over that period of time, which makes it reliable. As
a trader who uses checklist-based trading strategies, I look for a
confluence of events to occur before I put any money into the
market. It doesn’t matter if I go long or short, or whether I trade spot,
margin or futures. I follow the same objective strategy every time. I use these
moving averages as equilibrium points: a point at which I see the
market as being fair value. Essentially, I wait for the market to trend, and
then pull back into the cradle zone. The cradle zone is an area in
between a 10-period exponential moving average and a
20-period exponential moving average — and it is a
zone. It’s not an exact science. I call it a cradle zone because it’s a
comfortable place for the price to move from. That move could either be upwards
or downwards. The point is that it gives me a better understanding of the next
potential move and as traders, we always aim to get direction and timing right.
However, this does not mean that there will be an opportunity, nor is it a good
enough reason for me to trade. But it is one of the ingredients that I use. In
fact, I challenge you to go to any chart you like that is trending or has
trended and input two exponential moving averages: a 10- and a
20-period exponential moving average. You can place them on any
timeframe you like and watch what happens when price pulls back into those
areas. You will note that it is somewhat an equilibrium point in good trends.
Some people use moving averages for crossovers, which I don’t get.
The price actually moves before the averages move. That’s why they’re a
moving average of price. Price comes first, then the “averages” follow
what price has done. A golden cross is complete and utter nonsense for
predicting further moves higher. All it does is tell you that the price has
already gone up. If you are trading off this single ingredient alone,
then you need to know that you need more. The dead cross, on the other hand,
tells you that the price has already gone down because it is using the 50-period
moving average, which is the last 50 candles crossing with the last 200 candles.
What I’m trying to highlight here is that these indicators lag price. They’re a
lagging indicator, which makes them unreliable for predicting future movements
and therefore by themselves are not enough to trade from with any margin of long
term success. You see, price action tells you what’s going on and everything
else is simply derivative of price. Therefore, it needs to be the most important
element on your chart. The indicators are only there to help confirm or deny
potential opportunities for your trading or investing. And that’s how I use
moving averages. They’re an essential part of my trading strategies, but they
need to coincide with other events before I consider placing a trade. If you
want to see a video of exactly how I use them, you can watch below:
