Moving Averages vs ALS Strategy — Full Breakdown & Transcript

[00:01] The question we need to answer in this video is, do moving averages really work? They're the most used indicator in trading. As a matter of fact, you will see them by default on most exchanges like BB, Binance, Bit, all of them. But

[00:15] like BB, Binance, Bit, all of them. But the food for thoughts is if they are so popular, why aren't traders that are using them making a lot of money? Now, you don't need to think about it because I studied and back

[00:30] tested the two main moving averages strategy that top traders use and then compared it with another approach called the ALS strategy, Asian liquidity

[00:43] system. So, you get to find out which one works better in this video. So, let's start with the moving averages. What are they? A simple way to put it is that they are just wavy lines on your chart showing the average price over a

[00:57] period you choose. So the 20 moving average represents the average price over the last 20 candles. The 50 moving average represent the average price over average represent the average price over the last 50 candles and so on. The most

[01:12] used moving average setting is the 20, the 50, and the 200 moving average. and we're going to get to that. Now, the two main types of moving averages are the

[01:24] simple moving average. This one just a play moving average of closing prices. play moving average of closing prices. So, if you set it to 20, it adds up the closing prices of the last 20 candles and divide it by 20 then plot it at that

[01:38] point on your chart. The result is a smooth line that updates as new candle is formed. The second one is the exponential moving average. For this one, the calculation gives more weight to the most recent candle. So, it reacts

[01:54] faster to price changes. For example, if you look at this chart, uh these are you look at this chart, uh these are both 20 moving averages. The the blue one is a simple moving average. The purple one is the exponential moving

[02:09] purple one is the exponential moving average. You can observe that the purple one kind of hogs the charts more than the green one. So basically it reacts faster than the green one. But they they look they they basically have the same u

[02:24] movement only that one is closer to price than the other. For this video I'll be using the simple moving average in the strategy we're going to talk about. The first strategy for moving average that is popular is the crosses.

[02:39] Now, this is how it works. We're going to use the 20 and the 50 moving average to demonstrate this. I want to customize this to make it this to make it thicker.

[02:57] 20 moving average. I'm going to make this the 50 moving I'm going to make this the 50 moving average.

[03:13] let's use a slight purple and also make it thick. So the blue one is is a 20 moving average while the purple one is a 50 moving average. The blue one which is a 20 a lower number is called the fast moving average and the

[03:27] called the fast moving average and the 50 is a slower moving average. Okay. So the crosses is simple. When it when it crosses the 50 to the upside, we buy. When it crosses to the downside, we sell. It crosses to the upside is a buy.

[03:44] sell. It crosses to the upside is a buy. Crosses to the downside is a sell. It is Crosses to the downside is a sell. It is that simple. But there are two major problems with this. One is that moving average is a lagging indicator. When the

[03:59] crosses come, it might be too late. So let's look at this particular cross to the downside. So we have a cross to the downside here. But if you look on the chart, let's place this. So when this cross is confirmed, this cross is

[04:12] confirmed around here, this point here. So it means that we are probably going to be entering the short position here. And if we target the last

[04:25] swing, you see how far it is. And we're not getting a good risk reward at all. another one. If you look at this particular one here, when the cross is particular one here, when the cross is confirmed is around here. So if we say

[04:40] we are going long, we're going to enter around here and the last swing is here. Uh we target this high. So yes, we got uh maybe if you

[04:52] target to the high, if you target it to this top, we're just getting a 1.45 risk to1 ratio. So he's not it doesn't give us a pretty good risk-to-reward rat us a pretty good risk-to-reward rat trade because the signal is coming late.

[05:06] The second thing wrong with this is that sometimes we experience multiple crosses. You can see a cross here to the upside cross to the downside. A cross to the upside to the downside again a cross to the upside. So we have multiple

[05:20] crosses which if you're just trading this on this crosses you are going to have a lot of losing trades. Now for the liting cross one other indicator people use is called is the MAC D and I made a

[05:37] description of this video. So instead of using the moving average like this it's even better you use the MACD. One other way people try to salvage this is by

[05:49] way people try to salvage this is by bringing in the 200 moving average. So I'm going to bring it in simple moving average. So let's customize it. average. So let's customize it. This one is 200.

[06:03] this case, let me give it a green color. Does it pop? Okay. So the 200 moving average is the green one. The the rule that a lot of people apply is they

[06:15] simply say to filter out the crazy noise when the price is below the 200 moving average. We only take short positions. So we're only considering crosses to the downside like this cross here. We're not considering cross to the upside. We'll

[06:31] consider this cross here. We not consider this one. We consider this particular one to the downside. We'll consider this one to the downside. Now, this actually do filter out a lot of the noises with multiple crosses and

[06:46] problem that we still have with this is that it doesn't solve the problem of late entries because we're going to we're still going to have a very poor

[06:58] risk ratio. Um probably, you know, blowing the accounts if it just goes against you because these are not perfect indicators. The second most used strategy for moving averages is using them as dynamic support and resistance.

[07:14] So how does this work? You're using one moving average alone. You can use the moving average alone. You can use the 200, you can use the the 50, the you can use the the 20 alone. It just it just basically depend on how you want to

[07:28] trade. Let's say I want to use a 20. So I'm going to turn off the 50. So the strategy here is I'm combining the 20 and the 200. Again, the rule is still and the 200. Again, the rule is still only take short positions when price is

[07:44] um when price is below the 200 moving average. Take long position when price is above the 200 moving averages. So how does this work? If you look at this um trend here, it simply works this way. So if we have price break down the through

[08:00] the moving average then we want to take a position when it gets back and touches that line again. If I zoom in you understand what I mean. So here price

[08:13] understand what I mean. So here price came down this way breaking the 20 MA then it comes back and hit that zone then where you want to take your entry

[08:25] is when it start coming down. So this is the candle this candle here this green this last green candle is the candle where you want to take your short position from. So in this case we are using a sell a sell stop.

[08:43] So this actually gives a better risk toward ratio than the first strategy. Let's look at another one. Okay. So we have price um here breaks down this way. Again we're only

[08:57] breaks down this way. Again we're only interested in shorts. Then it came all this way to this particular point. then this is a candle that broke into this region even though it broke out. So we're interested in this particular

[09:10] candle. So whenever price comes down to this candle again to break this candle then we want to take a short position this

[09:22] way and target and target uh the low target at least a 2 hour. You can see it multiple times. Price came all this way and broke down.

[09:36] Okay, broke down. This is the next interaction with the candle. We'll mark out the green candle where it hits that and when it's coming

[09:48] where it hits that and when it's coming down, we'll aim for the black candle. Once it crosses that green candle, then we take a short position. So, this is a strategy. This can be done using the 20 moving average, the 50 moving average,

[10:03] moving average, the 50 moving average, even the 200 moving average. But the thing is that sometimes it's it's really hard to cash this moves, right? So there's no clear rule. One is okay, what is the rule here, right? You might not

[10:17] rule here. There are cases where you don't know what is happening. For example, in this particular case, we broke down from this point. Then we interacted at this point. So this candle, this green candle here, you can

[10:33] see it here. So meant to take a short position from this particular point, a short position from this point, right? From the last swing. So this ends up being a losing trade. So you're going to still also going to get losing trades

[10:46] still also going to get losing trades from this. And generally from this. And generally the rules are just everywhere. So again, we have this breakdown from this

[11:00] And once it interacts with this, this is the last green candle. You place it here, you place your sell stop

[11:15] it's broken and just target a 2 hour. The same interaction here. This is a where you place your sell stop, break into the zone, break out. So sometimes

[11:27] you also get a very a terrible risk toward ratio as well. So this is for bearish scenario. The same thing applies for when the when the chart is trending. In this case is having a trend here. It's broke into this zone. This is a

[11:42] um it interacted. So in this case you're looking at the black candles. This this time we have a terrible risk rod here and it happened again here.

[11:56] scenarios. There are also bearish scenarios for this. So this is for dynamic support and resistance. Now let's look at the ALS strategy and see

[12:09] how it compares to this. So what is that? It is again it is the Asian liquidity system. The theory is really simple and we are not there's no lag.

[12:22] lagging. We're not even using indicator at all. The idea here is that during the at all. The idea here is that during the Asian session, market usually ranges depending on the asset actually. Then later in the London session and the New

[12:37] York session, price often sweeps a share high then go to the low or sweep the low then move to the high. So how is this traded? So I'm going to use Euro USD to demonstrate this. How does it work? The first thing we're going to add this

[12:52] indicator. This is called um trading session by Sonadab. So if you go to your uh indicator on trading view, you have trading sessions by Sonadab. So this is the one you want to use. I have it here already. Now I like to customize mine.

[13:09] already. Now I like to customize mine. So this is the customization I use. So this is West African time. All right. Uh because I'm in Nigeria. Uh, Asian because I'm in Nigeria. Uh, Asian session is usually from 1 to like 8:00

[13:21] a.m. West African time, but I'm stopping mine at 7. Okay. Then London session is usually from 8 till around 4:00, but I'm ending mine by 12. You can see I I stopped it by 12. New York session starts by 1 and ends around 9 or 10 or

[13:39] starts by 1 and ends around 9 or 10 or so, but I'm ending mine by 6, sometimes by five, actually. So this is how I set my own up. You can do other customization to remove uh a lot of things that we look how it's

[13:54] it here. So how I'm going to trade this it is simple. The strategy is this. The strategy is this. So we have the Asian session like this.

[14:07] Then price we have price action Asian high Asian low price ranges in whatever way it's going to range. Okay. then we're out of the Asian session. What we expect to happen is price to sweep the top of the Asian session then go low

[14:25] top of the Asian session then go low or let's take it again or let's take it again Asian session we have price ranging Asian session we have price ranging within the session okay or we have price

[14:39] within the session okay or we have price sweep Asian low then go high cash this particular move. This also requires

[14:54] support and resistance. I've made multiple videos on it. So, let's look at how it works on the real chart. So, we have Asian session formed and you can have Asian session formed and you can see Asian session ranged and price just

[15:08] went swept the low, swept the high and went on its way on this particular trait. Um I'm not able to catch any trade here. Okay, because the setter I'm looking for

[15:21] doesn't form. But this will make sense when we look at another one. This is another one. So we have Asian range here. Then what can we see above here? Back to step two. Now mark out the demand and

[15:35] supply zone above and below. So over here we have a supply zone here and we here we have a supply zone here and we have fair value gap here. over here. So I expect this market to actually fall

[15:51] actually fall and what do I expect to happen is that this market sweeps Asian high takes into this other block then go low. So what I would do here is to take a short position from this particular point

[16:06] target the last swing high giving room for um sweep if there's any sweep and target the low basically. So a three a riskreward ratio of three is actually fine. So what happens the market actually

[16:21] tapped into that particular zone tapped into that zone picked that order and you know kept on going low. Okay, let's look at another another one. So, we have

[16:34] at another another one. So, we have Asian section we are arranging here. Then below here, what do we have? We have an other block here.

[16:50] above here. Which other block is closest and which one will be hit first? This is the one that we expect to be hit first. I also have an internal um breakout structure here. This is not a real breakout

[17:03] structure anyway. So this an internal breakout structure. So what do I expect to happen? Is this we want to go and sweep the low. position from this particular point

[17:16] during the London session target the give allowance or we can even go as far back to target this particular low we have here. Give allowance here. uh since we are considering this zone and you know target this particular high

[17:32] here the top of the Asian range we're not interested in this one for now so how did it play out so the market went up first and came in tap into our zone and still went and hit the takerit

[17:46] let's look at another one so here we have a break of structure this way have a break of structure this way this way okay it means that we are

[17:58] expected to this movement should have a retracement this movement should have a retracement that sweep Asian low and then go higher and go higher into maybe this other block we have here.

[18:20] block to place my order from here. I'm on the 15 minutes time frame. Let's go we can see an order block. This is an efficient zone. 5 minutes. It is also an efficient zone. So, there's no other block here. So, I would not be taking

[18:36] this trade. Let's see how this plays out. Back to the 15 minutes time frame.

[18:48] part of this low Asian low. And from there we went and bread and broke Asian high. Again it's important you understand market structure if you are using this particular strategy.

[19:07] more. So you see so you can compare the S10 to which actually works. So this is the one that I actually took. So what do we have here? We have an other block

[19:20] here. We have an other block to the downside downside which is a demand zone. which is a demand zone. Then we have another one over here

[19:34] Then we have another one over here which is a supply zone and this is the which is a supply zone and this is the Asian range. What do we have here? We have a break of structure to this side. So when structure is broken, price is

[19:47] meant to retrace and continue in that direction. Okay. And this another block here over here is a break of structure. I'm

[19:59] probably should continue going higher from there. So um how do I trade this? from there. So um how do I trade this? I'm going to put my entry I'm going to put my entry short position at this particular point.

[20:15] um protect it at this high and target this low. and target this low. This gives me a 3.6 3.2

[20:36] actually happened very quickly. We had a tap into the zone. So it swept Asian tap into the zone. So it swept Asian high, swept Asian low and now went its way. So this is the Asian liquidity strategy. Well explained. Now there are

[20:50] things you should note with this strategy. One is that don't trade it on news days. It doesn't work on news days. Right? For example, this particular day we have here was a news day and you can see it didn't work. So don't bother

[21:05] yourself trading it on a news day. The second thing is this strategy doesn't show up all the time. So sometimes like you can see it didn't show up here. It didn't show up here. It showed up here where I didn't get a good entry. It

[21:18] they didn't show up all the time. Some weeks you might not see the strategy weeks you might not see the strategy showing up playing up at all. But when it does, it actually works really well. The third thing you have to know is that

[21:32] during all my test where I've seen it the most is on Euro USD. So if you're trading Euro USD, maybe you should look out for it after the Asian session is formed. So that is it. Which of these strategy would you rather trade? Is it

[21:45] the strategy we talked about with the moving average or the ALS strategy? If you choose the ALS, you might want to combine it with divergence to get more setup and have more trade. I did a welldetaated video on divergence here.

[22:01] welldetaated video on divergence here. So I can just click here to watch