Do you ever feel like you are left out of the market dance? Do you ever feel like you are just sitting on the side watching because you don’t know the right steps?
Well, the market has its own simple Two-Step… and it can get you out on the trading floor in no time.
Like dancing a Texas Two-Step, traders can have a great time using a simple Market Two-Step called a simple moving average. Even better, this Market Two-Step will help you book some serious wins as well.
What Is A Simple Moving Average?
We can see the Texas Two-Step in the Market Two-Step. It moves in short quick steps. But over time the average is smooth and flowing.
A simple moving average takes that blazing fiddle and slows it down just a bit. It adds that wailing steel guitar. It is the average closing price of an asset over the past number of days you wish it to represent. It takes the short quick steps of the market’s daily dance and adds the smoothing effect of the slower steps. It blends all of the moves together into that graceful flow of motion on the dance floor of the market.
When we overlay the 14-day moving average on the daily price chart of Cisco Systems, it is easy to see the interaction. The moving average supplies the constant rhythm to balance the short runs of the music and price.
We can see the Texas Two-Step in the Market Two-Step. It moves in short quick steps. But over time the average is smooth and flowing.
A simple moving average takes that blazing fiddle and slows it down just a bit. It adds that wailing steel guitar. It is the average closing price of an asset over the past number of days you wish it to represent. It takes the short quick steps of the market’s daily dance and adds the smoothing effect of the slower steps. It blends all of the moves together into that graceful flow of motion on the dance floor of the market.
What Is The Market Two-Step For The Simple Moving Average?
The dancers in the saloon stay in time with the flow of the tune because they already know where it is going. They know the pace will rise and fall around the average beat.
The Market Two-Step shows us exactly the same thing. It simply does it using a
price average. Everything that moves will revolve around an average. Sometimes it will dance above it. Other times it will dance below. That is what an average is.
We simply wait for the daily quick steps to cross paths with the long slow steps. That is the point where our orders stop dancing to the left and start dancing to the right.
When the quick daily steps cross the slower 14-day average, exiting one position and taking the opposite side wins. Good dancers and traders know these are the times to dance in the other direction.
When the daily market beat moves through the average heading lower, we sell our long positions.
The Market Two-Step shows us exactly the same thing. It simply does it using a
price average. Everything that moves will revolve around an average. Sometimes it will dance above it. Other times it will dance below. That is what an average is.
We simply wait for the daily quick steps to cross paths with the long slow steps. That is the point where our orders stop dancing to the left and start dancing to the right.
When the daily market beat moves through the average heading lower, we sell our long positions. Then we immediately change direction and go short. When we look at how the Market Two-Step worked with Cisco Systems the effectiveness is clear. The quick, daily steps of the price crossing the slow moves of the average produced winning trades.
How Can Something This Simple Actually Work?
The simplicity of the Texas Two-Step doesn’t prevent it from being cool on the dance floor. Only the people who do the dance know how simple it is. Those who don’t know the only two steps involved are left to look on in admiration.
In the trading markets, the music is supplied by the institutional players who set the daily tune. The short-term rhythm will vary a bit. But when it moves from one side of the basic beat to the other, it tends to have a little run.
It is the momentum of the institutional band at any given time that drives the pace of the Market Two-Step. Traders can simply wait until the beat changes from up to down to step in, out and back in.
Trading Doesn’t Have To Be Complicated To Be Profitable And Fun
Maybe it is a bit redundant to use “Profitable And Fun”. Just how often is your trading profitable and not fun?
How often do we convince ourselves that all of this has to be super-complicated to be profitable? We now can see that is not the case.
The Market Two-Step is exactly the same as the Texas Two-Step. If you are just watching someone trade, it can look very smooth, professional and a little intimidating. But when you look close, it is just buying and selling to the flow of the institutional money. It is really simple.
A simple moving average is not hard to calculate and plot; but it does take time to do. This creates the opportunity to miss a step in the market. If just doing the Texas Two-Step, a good dancer will recover quickly. Nobody will notice.
Miss a step in the Market Two-Step, you might well have missed half the dance. You and your trading account will both notice. The recovery can be anything but quick or cheap. That’s why most successful traders use technology to calculate and plot this critical information.
Trading and dancing don’t have to be complicated to be fun. Trading, however, does kinda need to be profitable if you plan to enjoy it.
Take a look on your own at how profitable the Market Two-Step trading can be. You might just like it well enough to buy a nice pair of Tony Lama trading boots. Then you can add some Texas flair to your Market Two-Step.