Trading Using the 20 Moving Average

The Power of the 20

I thought we would have a refresher on the value and power of the 20.

The 20 is used by most institutions, banks, funds and big boys as part of their trading. Some use it with the cross of another MA or MAs as a system. Many of the little guys (us) use the 20 in some form or other in our trading. Some professional traders use the price and 20 as their method by buying a close above the 20 and selling a close below the 20 (don’t try this at home, as they say, as the Professionals also use filters to avoid whipsaws and “false” moves).

To a certain extent, the use of the 20 becomes, like Fibonacci retracements, a self fulfilling prophecy.

Our use of the 20 is not as a trigger in any shape of form, but as one of the tools to help us in our decision making process. It should never be used in isolation and never be taken as “the last word”.

Think of the 20 as equilibrium, or the balance line which is the point at which buyers and sellers AGREE on price. Remember we are dealing with energy both of the market and its traders. Energy ALWAYS seeks balance through the path of least resistance. If you haven’t done already, you should study thousands of charts (daily and up) with the 20 and 50 moving averages on and note several things:

The slope of the averages
The cross of the averages
Price relative to the averages

You should also take note:

What the market is doing when the 20 is flat
What the market is doing when the slope is up AND how STEEP that slope is
What the market is doing when the slope is down AND how STEEP that slope is
What happens to price when the 20 acts as resistance
What happens to price when the 20 acts as support
How price reacts around the 20
What happens when the 20 is broken
What happens to price when it crosses the 50
What happens to price when, and after, it is trapped between the 20 and the 50
What happens to price when it is stretched away from the 20

Think of the 20 as a magnet which attracts price (equilibrium). Outside forces greater than the power of the magnet ( buyers or sellers) pull prices away from the magnet. As price pulls away from the magnet, it takes the 20 with it but at a slower and lagging rate. The price reaches a certain point beyond the 20 where the 20 invokes its elastic limit and pulls prices back in line.

If you take the time to study each pair going back as far as your data allows, you will find that there is, for each pair, a certain number of pips that price moves away from the 20 before the 20 pulls price back into line (equilibrium)

The slope of the 20 gives you a “rough” approximation of momentum – use this with my TLs and you have a very good Momentum system.

The slope of the 20 and the cross of the 20 above the 50 tells you which direction you should be trading in.

The 50 is not as powerful as the 20 but when price “uses” the 50, take note.

As per my style of no spoon feeding, I have given you the pointers, now you do the work and prove the value of the 20 for yourself. Nothing works better than something you have proved for yourself AND therefore BELIEVE in.

Add the knowledge of the power of the 20 to our PASR and we have an edge over most traders. In case of any conflict, PASR rules over EVERYTHING.

Let’s look at a few examples:

AUDJPY 5/18/09
On 5/17/09, price was at support of the TL with the 20 acting as resistance below psycho 73.00. As of 3pm NY time, price blew through the 20 AND psycho 73.00. IF price closes above these levels it is telling is something………………………….

AUDUSD 5/18/09
On 5/17/09, price was floating between S&R BUT supported by the 20. As of 3pm NY time, price used the 20 as support to attack the previous high.

CHFJPY 5/18/09
On 5/17/09, price had lost TL support and was floating between S&R lines BUT lined up with my Momentum, Momentum and Cycles. Price then took off big time, in concert with most JPY pairs UNTIL it hit the 20 acting as resistance. No PASR, just the good old 20 doing it’s job.

EURCAD 5/18/09
As above

EURGBP 5/18/09
As above

EURJPY 5/18/09
As above


EURUSD 5/18/09
As AUDUSD except also note the down TL previously acting as resistance has now been re-tested and CONFIRMED as support – I wonder if this is telling us anything?

GBPJPY 5/18/09
As AUDJPY

GBPUSD
From 3/19/09 to today the slope is up, about 45 degrees (a Gann Angle).
From 4/28/09, prices have closed above the 20 – maybe that is telling us something?

NZDUSD 5/18/09
As AUDUSD

USDCAD 5/18/09
On 5/15/09 and 5/17/09, price stalled and held down by the 20. On 5/18/09, price was firmly rejected by the 20 and sold off.

Never under estimate the value and power of the 20.
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