How To Filter The Trend Using The 200 DSMA

In the market we often see inconsistent trends that occur between different cycles. For example, at this time today we may think one asset is strong such as the US dollar, but instead today it may occur that in reality the US dollar is weak today, only to see that the following day the US dollar is once again stronger, or next week after a week of bearishness. One method that banks and financial institutions use to filter the longer term trend is by using a technical indicator, the simple moving average of period 200, on the daily chart. Continually the sma 200 is used to filter the trend, when the price is above the sma 200 the asset is said to be in a bullish trend, and when the price is below the 200 daily sma the asset is said to be in a bearish trend. Let us look closer into this further and take the EURUSD daily chart as an example. Interestingly enough the EURUSD currency pair has been trading under the 200 day sma since June 17, 2021, quite some time. It has not been able to cross back above the 200 sma and has thus been seen by banks and financial institutions as bearish. This in turn helps to maintain consistency by establishing a more accurate consistent trend. In this case you can choose to take short positions only on the euro pair during cycles of the asset being overbought. Though this strategy can show strength in longer term trends there is one downside, with this strategy of course since you can only take short positions you get less trades annually on the higher time frames such as on the 4 hour or 1 day time frames. The benefit and upside is that they are usually more accurate longer term, and often the trend can last for months or in this case over a year sometimes longer, and beneficially you are always trading with the banks rather than against them.

Ilyas Khan Top1 Markets