Let’s look at a GMMA compression breakout strategy.
The moving averages also act as support and resistance levels.
When compression of both groups of moving averages occurs on the same candlestick, this could indicate an overall trend change.
Here’s the trade setup:
Here’s an example:
In the chart above, both groups of EMAs have become tightly compressed. Notice how the last candle opened below all moving averages and managed to close above all moving averages.
We can interpret this as the price being able to close above a resistance level (the compressed EMAs).
Set a buy-stop order above the candle’s high and a sell-stop order below the low.
In the next candle, the price rises which triggers the buy-stop order.
The previous sell-stop order now becomes your initial stop loss.
Price continues to rise. Whenever a candle makes a new higher low, you can trail your stop loss and use this as the new stop loss, until you get stopped out.
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