Simple Moving Average Strategy: For Entries, Exits, and Trend Confirmation

Jasper Osita - Market Analyst

2025-07-23 12:41:57

This is Part 4 of our Moving Averages Series

If you’re just joining, start with:

Part 1: Moving Averages for Beginners
Part 2: Best Moving Average Settings for Your Trading Style
Part 3: How to Use Moving Averages as Dynamic Support and Resistance Zones

Goal of This Lesson

To help you confidently apply the 20 EMA and 50 SMA in real-time trading - not just as lines on your chart, but as trend filters, entry frameworks, stop anchors, and trail guides - all paired with the one tool that never lags: price action.

Quick Recap from Part 3

In Part 3, you learned:

The 20 EMA reacts quickly to short-term momentum
The 50 SMA offers smoother trend structure confirmation
Different combinations suit different trader types

Now let’s use them in live setups - the simple way.

Reminder: MAs Are Tools, Not Signals - Use Them in Trends Only

Moving averages only provide value when the market is moving with direction.

When price is ranging, they give confusing and false signals.

Avoid using MAs when:

20 EMA and 50 SMA are flat or crossing repeatedly
Price is cutting through both with no clear HH/HL or LH/LL
Structure is unclear and the market feels indecisive

Let the market tip its hand first. MAs work best after the breakout - not before it.

The Role of the 20 EMA and 50 SMA - Together

MA	What It Does	Best Use
20 EMA	Reacts to short-term shifts	Entry timing + dynamic support/resistance
50 SMA	Filters larger trend direction	Trend bias + structural confirmation

Used together:

20 EMA = trigger zone
50 SMA = trend filter + reset zone

Why Price Action Confirmation Still Comes First

Here’s what most beginners miss:

Moving averages are not predictive. They follow price - not lead it.

Even the 20 EMA, which feels responsive, is still built on previous candles.

That’s why:

MAs should act as supportive tools, not entry signals by themselves
Price action is still the real-time confirmation you need to pull the trigger

Think of it like this:

MAs show you where trades might happen
Price action tells you when it’s time to act

The Strategy: Break and Retest Entry + Stops Using 20 EMA + 50 SMA

Step 1: Identify the Trend

Is price Ranging? Trending?
50 SMA sloping up/down = higher timeframe trend
20 EMA sloping with it = momentum and flow
Price above both = bullish trend (look for buys)
Price below both = bearish trend (look for sells)

If MAs are aligned and structure agrees, bias confirmed.

If Price is ranging, wait.

Step 2: Wait for Price to Breakout and Pullback

20 EMA = quicker pullback, shorter-term setup
50 SMA = deeper pullback, more conservative/trend reset

Bonus if price pulls into a prior OB, FVG, or S/R level near the MAs

Step 3: Use Price Action as the Entry Trigger

Examples:

Bullish or bearish engulfing/piercing candle/s at the MAs
Wick rejection and close above/below
BOS or CHoCH near the moving averages
Liquidity sweep + strong reaction + fair value gap

Enter on candle close if price confirms direction and structure still favors the trend

Stop-Loss Placement Logic

Type of Entry	Suggested Stop
20 EMA bounce	Below last swing + below EMA wick
50 SMA pullback	Below previous structure or consolidation
Aggressive confirmation	Below entry candle or minor structure

Always give the trade space below the MA zone - don’t put stops right on the line.

Trail Your Position Using the EMAs

Method 1: Price-Structure Trail

Trail SL below each higher low (in uptrend) or lower high (in downtrend)
Use 2 ranges for invalidation of the trend, set SLs behind

Method 2: EMA-Based + Price Action Trail

As long as price stays above the 20 EMA, hold the trade
If price closes below the 20 and breaks structure, exit

Use the 50 SMA as a deeper trailing reference for swing trades.

Spotting a Trend Shift With the 20 EMA + 50 SMA

Want to know if the trend is fading or reversing?

Look for this combo:

1. Crossover

20 EMA crosses below 50 SMA = bearish momentum building
20 EMA crosses above 50 SMA = bullish shift

2. Price Confirmation

Bullish: Price closes above both MAs and forms HH/HL
Bearish: Price closes below both MAs and forms LH/LL
Watch for CHoCH, FVG, or aggressive rejection wicks

Crossover alone is not a trade signal.

Confirmation through price action is still required.

Quick Checklist: 20 EMA + 50 SMA Confluence Entry System

✅ 50 SMA confirms overall trend

✅ 20 EMA sloping with momentum

✅ Price pulls into either MA

✅ Price action triggers confirmation (engulfing, rejection, CHoCH)

✅ Stop below EMA or swing

✅ Trail below HL/LH or 20 EMA

✅ Exit on structure break or close beyond both MAs

Final Thought

The 20 EMA and 50 SMA give you rhythm, flow, and context.

But they’re still based on past price.

The market moves first — and your job is to read it in real time.

Price action is the only real-time indicator.
Use MAs as filters, not signals.

Combine structure + MAs + a price confirmation — and you’ll stop chasing trades… and start catching cleaner trends.

Here’s your practical drill:

Add 20 EMA and 50 SMA to your chart
Identify 3 trending setups this week
Wait for pullback to either MA
Confirm with price action (engulfing, wick, break)
Log:
- Trend bias
- Entry candle
- Stop logic
- Exit reason

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This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplies by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.

Autor

Jasper has been in the markets since 2019 trading currencies, indices and commodities like Gold. His approach in the market is heavily accompanied by technical analysis and of course, supported by fundamentals. He has a background in trading proprietary firms and has been teaching students how to navigate themselves in the markets from basic to advance concepts.

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