Perfect order takes places when the moving averages are stacked in a sequential order. For example, suppose you are using a three simple moving average system, 10 day SMA, 20 day SMA and 50 day SMA. In an uptrend, a perfect order world be when the 10 day SMA is above the 20 day SMA and the 20 day SMA is above the 50 day SMA. In the same manner, the 100 day SMA should be below the 50 day SMA and the 200 day SMA should be below the 100 day SMA.
Similarly, in case of a downtrend, the reverse order should be in place with the 200 day SMA above the 100 day SMA that should be above the 50 day SMA that should be above the 20 day SMA which should be above the 10 day SMA.
When you find the moving averages stacked in a perfect order, it indicates a strong trend in the market that has the big money behind it to make it continue for the future. These different moving averages serve as multiple levels of support. Perfect order among the moving averages does not happen often but when it happens, you can trade this perfect order with the following rules:
First there should perfect order between the 10 day SMA, 20 day SMA and the 50 day SMA.
Use the ADX to confirm that strength of the trend. ADX reading should be higher than 20 and it should be trending up.
When the perfect order takes place, wait for five candles or bars for the perfect order to hold before you enter into a trade.
Place the stop loss on the low of the day when the initial crossover takes place for a long trade.
In case of a short trade, place the stop loss on the high of the day when the initial crossover takes place.
You must exit the trade when the perfect order between the moving averages does not holds.
The ADX is used to optimize the perfect order trading strategy. It should be greater than 20 and trending up. ADX resides vertically either above or below the bar or candlestick chart. This indicator is used to measure the strength of the current trend.
In a strong trend, ADX has high readings and in a weak trend, ADX has low reading. An increasing ADX reading indicates the trend is growing in strength while a decreasing ADX reading indicates that the trend is becoming weak. Watch these shocking Forex Trader PRO Videos FREE that show a total blockhead making 10 out of 10 winning trades. Download this award winning Forex Trading System that made 1,306.50% in one month FREE and watch the banned system video.