Moving average channel is a trend following indicator.
Being a trend following indicator,Moving Average channel was created by Jake Bernstein to help traders know whether the market is trending upward or downward.Unlike other trend following indicators, Moving average channel has an upper and lower boundaries.The upper boundary has a period of 10 while the lower boundary has a period of 8.The upper boundary is normally indicated green/blue in color while the lower boundary is normally indicated red in color.Just like other trend following indicators,moving average is also based on support and resistance.
According to Jake Bernstein,the values of moving average channel is gotten using the formula below;
Upper channel = (average price + no of standard dev for upper channel*standard dev of last period)
lower channel = ( average price + no of standard dev for lower channel*standard dev of last period)
Since moving average channel is based on support and resistance and it has upper and lower boundaries, it therefore follows that when the prices accumulate on the upper boundary, that will be an indication that the market is bullish thus the trader should be trading in an upwards direction while when the prices accumulate on the lower boundary, that will be an indication that the market is bearish thus the trader should be trading in a downwards direction.If the price rises above the highest point of the upper boundary,a downward market reversal will take place thus signalling the trader to exit any buy position and enter a sell position.On the other hand,if the price falls below the lowest point of the lower boundary,an upward market reversal will take place thus signalling the trader to exit any sell position and enter a buy position. This is indicated as from the candle sticks chart below;
From the candle sticks chart above,there are 4 points, point A, B , C and D as well as the lower boundary(red curve) and the upper boundary( blue curve). Point A and B represent the bearish market while point C and D represent the bullish market.At point A and B , the prices have accumulated below the lower boundary thus the market is signaling the trading to be trading in a downward market direction at those two points.On the other hand, at point C and D, the prices have accumulated above the upper boundary thus the market is signaling the trader to be trading in an upward direction at those two points.
Recommendation; If you are a day trader just use 1 min, 5 min, 15 min and 30 min timeframe while if you are a swing trader just use 1 hour and above timeframe if you want moving average channel indicator to work well for you.
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