Forex Moving Averages come in a variety of different shapes and size. No doubt you will have seen or heard about Simple Moving Averages (SMA) or Exponential Moving Averages.
Before introducing the rest of the family - let's have a quick recap...
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Simple Moving Averages
If you want to keep it 'simple' an SMA is for you. Using a number of x price points you simple add the up and divide by the number of price points. Confused?
SMA = p1 + p2 + p3 + p4 + p5 / 5
You add up your last 5 closing prices and divide by 5. The number of price points you work with to calculate the average is down to you. The smaller the number, the faster the SMA will move. The longer (eg. 20 SMA) the period you take into account, the slower it is too respond.
What Time Period Do I Use?
Good question. There are pro's and con's to using both short and long time periods. The easy answer is to use different periods in combination. Maybe a 5MA and 20Ma, it isn't uncommon for traders to use 3 MAs.
A good combination of 3 MAs give you a 'fast, medium & slow' trend line to watch. A popular combination might be a 4MA, 9Ma and 18MA.
Using 2 MAs the trader would look for an occasion when the short MA crosses the longer MA (the faster line crosses the slower line) and runs above the slower MA on the graph. This would be a buying opportunity.
The opposite would be identifying a time to get out. The shorter MA crosses below the longer MA.
If you are new to trading forex with indicators, work with Moving Averages. The most simple and versitile of indicators - they will help you reduce the 'noise' on a price chart and spot trends you can trade on.
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Friday, 25 July 2008
How to Use Forex Moving Averages
Forex moving averages are amongst the most commonly used trading indicators. I wouldn't go as far to call them the 'best forex indicators' simply because the person who uses one indicator is doomed for failure. You could consider forex moving averages - your 'bread and butter' - the basics behind your forex success and getting those fx pips.
>> Trade Forex with less than 10 minutes per day
Forex Moving Average Graph vs. Price Action Graph
Correct usage of moving averages will help you identify a trend, that could be upwards, downwards or even flat. The gentle, smoothing effect a forex moving average has (compared to the erratic price movements) makes it much easier to identify these trends.
It is very important to be able to identify real upwards or downwards trends. Occasionally a trend might look like it is going one way or the other when it is actually flat (moving sideways or ranging). Understanding the moving average trend and the price actions (eg. forex candlesticks) can help you identify this.
Entry & Exit Times
Placing the moving average over a price (either a price graph or a forex candlesticks chart) can help you identify entry and exit points. A buy sign could be when the trend is upwards and the closing price is above the trend line. A sell sign could be when the trend is downwards and the price is below the forex moving average line.
Got 10 Minutes a Day spare? This simple and effective course takes you through trading forex to turn a profit >> Visit <<
>> Trade Forex with less than 10 minutes per day
Forex Moving Average Graph vs. Price Action Graph
Correct usage of moving averages will help you identify a trend, that could be upwards, downwards or even flat. The gentle, smoothing effect a forex moving average has (compared to the erratic price movements) makes it much easier to identify these trends.
It is very important to be able to identify real upwards or downwards trends. Occasionally a trend might look like it is going one way or the other when it is actually flat (moving sideways or ranging). Understanding the moving average trend and the price actions (eg. forex candlesticks) can help you identify this.
Entry & Exit Times
Placing the moving average over a price (either a price graph or a forex candlesticks chart) can help you identify entry and exit points. A buy sign could be when the trend is upwards and the closing price is above the trend line. A sell sign could be when the trend is downwards and the price is below the forex moving average line.
Got 10 Minutes a Day spare? This simple and effective course takes you through trading forex to turn a profit >> Visit <<
Thursday, 24 July 2008
Forex Moving Averages: Trade with Forex Indicators
What are Moving Averages?
Forex Moving averages are a way of smoothing out prices for a specificed time frame. This could be a hours, days or weeks. If you are trading on an hourly basis, a 5 period moving average would be those 5 period prices added together and divided by 5. You might prefer to call this the mean.
Click here to trade forex in less than 10 minutes per day.
Remember we are using 'Forex Moving Averages' and not 'Forex Averages'. In 1 hours time another price point will have passed. You will have an extra price to take into consideration. To keep the same 'period' you will include this new price and lose the earliest.
This helped me understand:
Your last 5 prices are : 1+2+3+4+5 / 5 = 3
In an hours time you have : 2+3+4+5+6 / 5 = 5
The averages roll (or move) forward, keeping up to date with the newest price and losing the earliest. This is the basis behind moving averages and they create a smoothed graph that will sit on top of a typical Forex candlestick graph.
Simple & Exponential Moving Averages:
This is an example of a Simple Moving Average (SMA). Each price point has an equal weighting. Exponential Moving Averages (EMA) give more importance to recent prices (ie. the last price point is more important than the first. When the most recent price has greater influence, the graph is more responsive to changes (eg. a sudden spike) compared to an SMA which has a greater smoothing effect.
Using Forex Moving Averages
Using 2 or 3 forex moving averages with different time periods you can readily identify a trend that indicates a good time to open or close a trade. A short time period is a graph that responds rapidly to price change. Using longer forex moving average periods produce a greater smoothing effect, which is slower to react.
Without going into the 'why' - as soon as the fast line crosses your medium line - it is time to get interested. Once it crosses the slow line, it's time to look at trading. Of course there you do have to take into account the forex candlestick position, however that's pretty straight forward.
Find out more
You can get started with only 10 Minutes a Day - CLICK HERE to find out more.
Forex Moving averages are a way of smoothing out prices for a specificed time frame. This could be a hours, days or weeks. If you are trading on an hourly basis, a 5 period moving average would be those 5 period prices added together and divided by 5. You might prefer to call this the mean.
Click here to trade forex in less than 10 minutes per day.
Remember we are using 'Forex Moving Averages' and not 'Forex Averages'. In 1 hours time another price point will have passed. You will have an extra price to take into consideration. To keep the same 'period' you will include this new price and lose the earliest.
This helped me understand:
Your last 5 prices are : 1+2+3+4+5 / 5 = 3
In an hours time you have : 2+3+4+5+6 / 5 = 5
The averages roll (or move) forward, keeping up to date with the newest price and losing the earliest. This is the basis behind moving averages and they create a smoothed graph that will sit on top of a typical Forex candlestick graph.
Simple & Exponential Moving Averages:
This is an example of a Simple Moving Average (SMA). Each price point has an equal weighting. Exponential Moving Averages (EMA) give more importance to recent prices (ie. the last price point is more important than the first. When the most recent price has greater influence, the graph is more responsive to changes (eg. a sudden spike) compared to an SMA which has a greater smoothing effect.
Using Forex Moving Averages
Using 2 or 3 forex moving averages with different time periods you can readily identify a trend that indicates a good time to open or close a trade. A short time period is a graph that responds rapidly to price change. Using longer forex moving average periods produce a greater smoothing effect, which is slower to react.
Without going into the 'why' - as soon as the fast line crosses your medium line - it is time to get interested. Once it crosses the slow line, it's time to look at trading. Of course there you do have to take into account the forex candlestick position, however that's pretty straight forward.
Find out more
You can get started with only 10 Minutes a Day - CLICK HERE to find out more.
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