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The 50 Day Moving Average Trading Strategy Guide 

Last Updated: September 16, 2020

By Rayner

The 50 Day Moving Average Trading Strategy Guide

Here’s the deal:

There are endless possibilities when it comes to moving average.

You’ve got the 50 day moving average, 100 day moving average, 200 day moving average, etc.

So you’re wondering:

“Which is the best moving average?”

Well, there’s no best moving average out there because it doesn’t exist (as it depends on your objective current market structure).

But in a healthy trend, the 50 day moving average is king.

And that’s what you’ll discover in today’s post, so read on…

What is 50 day moving average and how does it work?

First, what’s a Moving Average (MA)?

The Moving Average (MA) is a technical indicator that averages out the historical prices.

For example:

Over the last 5 days, Google had a closing price of 100, 90, 95, 105, and 100.

So, the average price over the last 5 days is:

[100 + 90 + 95+ 105 +100] / 5 = 98

This means the 5 day moving average is currently at $98

And when you add these 5 period MA values together, you get a smooth line on your chart.

What about the 50 day moving average?

Well, the concept is the same.

All you need to do is add the closing price over the last 50 days and divide by 50, that’s it.

Of course, you don’t have to do it manually because all trading platforms allow you to add the 50 day moving average to your chart.

Here’s how to do it on TradingView:

And here’s how it looks like: A 50 day moving average on the chart

Pro Tip:

A Golden Cross occurs when the 50 day moving average crosses above the 200-day moving average.

How to use the 50 day moving average and identify profitable trading opportunities

Most traders are familiar with buying Support and selling Resistance.

Now, this is useful when the market is in a range or a weak trend.

But what if the market is in a trend like this?

As you can see:

The market doesn’t re-test Support and if that’s what you’re looking for, you’ll be on the sidelines for a long time (while the market continues higher without you).

So, how do you trade in such a market condition?

Well, you need to find a new area of value — and that’s where the 50 day moving average comes into play.

Let’s look at the same chart earlier but this time, overlay with the 50 day moving average…

See the difference?

(Also, it’s normal for the price to exceed the 50 MA as we are identifying an area of value, not a specific price level.)

And after the price re-tests the 50 day moving average, you can use reversal candlestick patterns (like Hammer or Bullish Engulfing Pattern) to time your entry.

(I’ll share more on this later.)

For now, let’s move on…

How to use the 50 day moving average to ride massive trends (and not get stopped out on minor pullbacks)

Here’s the thing:

When it comes to riding trends, many traders get stopped out on the slightest pullback.

Why?

Because they trail their stop loss too tight!

It’s kind of like chasing a girl. If you stay too close to her, she’ll run.

But if you give her space, you’ve got better odds of winning her over.

So how do you do fix it?

Well, you’ve got to learn how to let go and give your trade room to breathe.

And one approach is to use the 50 day moving average to trail your stop loss.

This means…

If you’re long, hold the trade as long as the price remains above the 50 day moving average, and exit only when it closes below it (and vice versa for short).

An example:

Pro Tip:

If you want to ride trends in the market, then you must give back open profits. There’s no other way around it.

How to use the 50 day moving average and filter for high probability trend reversals

When you’re trading trend reversals, your entry timing is critical.

If you’re too early, you risk getting stopped out.

If you’re too late, you miss catching the big move.

So, how do you time your entry such that you’re not too early or too late?

Well, you can use the 50 day moving average to act as a trend filter.

Here’s how…

If you want to go short against an uptrend, wait for the price to close below the 50 day moving average before you look to short (and vice versa for long).

Now you might be wondering:

“What if the price didn’t close below the 50 day moving average, can I still short?”

No.

You remain on the sidelines. Let the 50 day moving average act as a trend filter and tell you when it’s “safe” to go short.

Pro Tip:

To increase the probability of your trades, make sure the price leans against the higher timeframe market structure.

This means if you’re looking to short, you want the price to be at Resistance on the higher timeframe.

If you want to learn more, check out The Trend Reversal Trading Strategy Guide.

Do you always enter your trades too late? Here’s why (and how to avoid it)

Let me ask you…

Do you always enter your trades too late only too realized you’ve bought at the highs?

The next thing you know, the market does a pullback, and you got stopped out.

The worst part?

Your analysis is actually correct, and the market continues to move higher without you.

Ouch.

And why does it happen?

It’s because you enter your trades far from an area of value (when the price is “overstretched”).

So, how can you avoid it?

The secret is this…

You want to trade near an area of value, not far from it.

For example:

In a healthy trend, the area of value is at the 50 day moving average.

This means you want to enter your trades near the 50 day moving average so you can increase your winning rate and profit potential.

Here’s what I mean…

And here’s where NOT to enter a trade…

Pro Tip:

In a strong trend, the area of value is at the 20 day moving average.

In a weak trend, the area of value is at Support and Resistance area.

50 day moving average: How to better time your entries with deadly accuracy

There are two techniques you can use:

  1. Reversal candlestick patterns
  2. Trendline break

I’ll explain…

#1: Reversal candlestick patterns

Recall:

The 50 day moving average acts as an area of value in a healthy trend.

So when the price re-test the 50 day moving average, what now?

Well, you want to see buying pressure stepping to “confirm” the market is ready to move higher.

And this can be in the form of reversal candlestick patterns like Hammer, Bullish Engulfing, etc.

Here’s what I mean…

However:

There are times you don’t get any reversal candlestick patterns and the price continues to move higher.

That’s where the next technique comes into play…

#2 Trendline break

Here’s how it works…

When the price does a retracement towards the 50 day moving average, you can draw a “mini trendline” pointing towards it.

Then your entry trigger occurs when the price breaks out of the “mini trendline”.

Here’s an example:

Next, let’s combine what you’ve learned and develop a 50 day moving average strategy.

Read on…

50 day moving trading strategy that works

Disclaimer: Please test this trading strategy first before risking your own money.

Now, the idea behind this trading strategy is to capture one swing in a healthy trend.

Here’s how it works…

  1. Identify a healthy trend where the price respects the 50 day moving average
  2. If there’s a healthy trend, then wait for the price to re-test the 50 day moving average
  3. If there’s a re-test, then look for a valid entry trigger (like reversal candlestick patterns on trendline break)
  4. If there’s an entry trigger, go long on next candle open and set your stop loss 1 ATR below the swing low
  5. If the price moves in your favour, exit before the nearest swing high

Here are a few examples…

Winning trade on USD/SGD Daily:

Winning trade on BTC/USD 4-Hour:

Losing trade on EUR/USD Daily:

Pro Tip:

You can tweak this 50 day moving average strategy to ride a massive trend.

All you need to do is use a trailing stop loss instead of a fixed target profit.

Conclusion

So here’s what you’ve learned:

  • In a healthy trend, the 50 day moving average acts as an area of value to find profitable trading opportunities
  • You can trail your stop loss with the 50 day moving average to ride massive trends
  • If the price is too far from the 50 day moving average, it’s probably too late to enter. Wait for the price to make a pullback before looking for entries
  • If the price is at the 50 day moving average, you can use reversal candlestick patterns or the trendline break to time your entry

Now it’s your turn…

How do you use the 50 day moving average?

Leave a comment below and share your thoughts with me.

  • The area of value mostly works if it is the first, second or third pullback to the 50 days moving average. From the 3rd pullback and onwards it becomes risky and the market does whatever it wants. You may also want to check the higher timeframes consistency with the one you use and also the lower timeframes to time your entry.

  • The contents of the article are very clear and understandable! These contents somewhere else you can’t get them for free, thanks Rayner for your commitment and hardworking, I really appreciate your work!

  • Hey Rayner, isn’t discretionary trend following and systematic trend following strategies correlated approaches to trade the markets? Isn’t systematic trading requires large capital to start with compared to discretionary trading? Your explanations will be helpful and appreciated.
    Thanks

    • Yes they will be correlated if you trade them on similar timeframes and markets.

      Both require capital to trade, and systematic TF would require much since you’ll likely have more positions on.

  • I prefer to combine a trendline from a higher timeframe with the ema55….waiting for the break of the trendline and crossing the ema is quite safe – for exits I very often take the next fiboncci level….

  • I used 50MA in simply term without much knowledge but your writeup has really helped me with the correct timing.
    When I use 50MA, didn’t really consider area of value, all I did was since price is above or below the MA, I take my trade of long or short..

    But Rayner my question is,
    Do I have to use this 50MA on a specific timeframe or any one goes ?

  • I’m gonna back-test your strategy but between you and I; I like it already because you are one of my favorite YouTube Forex-coach…thank you so much

  • Hey Rayner, Since I started commenting my thoughts in the blog posts you are sharing, I have found it difficult to get notified whenever someone else comment on the same post, Is there any option I can use to get notification if someone comment or reply to my comments once I switch ON internet connection? If isn’t available can you make it to make our life easier?

  • Thank you Rayner, i have used this and it worrks, im trading hourly timeframes , works well for me. Are you going to post price action patterns like head and shoulders pattern and so forth , im really interested in learning those. Cheers

  • You are the answer I’ve been trying to look for.. Keep up you are not selfish. Of All I learned 70% is from your videos and e-books

  • Hi Raynor can you tell me if you can use this strategy from the one timeframe or do you need to check other timeframes for trend or phases.

  • Hi Rayner,
    Thanks a lot for ur dedication in helping new traders….anyway does timeframe matter? If it does what is the best time frame..thanks

  • Hi Rayner,
    Jus now I happened to watch your video on candle sticks… Had watched few others videos as well but u r special in catching what’s that implies to the watchers in trading… Thank you… Following you… Got the books… Vl get back to you… Gifted to follow u..

  • Hey Rayner. I m your Fan from India. Thanks for your lovely insights.
    Which one is more accurate in these set up? 50 EMA or 50MA. Thanks in advance

  • Your teaching is always amazing, I just love you, may you increase in knowledge and understanding as never before. Thanks so much

  • Really appreciate your work Rayner, it’s very helpful and the best i’ve seen. Just a suggestion. The red/green candles,or even brown, are very difficult to see for people who are red/green colour-blind: about 10% of the male population. Any other(distinctive) colours are fine. Also appreciate your clear expression. Thanks again for your efforts.

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