Moving Averages Basics And How They Help FOREX Traders.
Carl's 2 Cents:
I found it difficult to use
moving averages to make trade decisions.
Check out this web site at
Barchart.com It measures performance
based on different trading strategies - many of
them are using various combination of moving
averages. Personally, it would be
confusing to me to remember which currency pair
best uses what moving averages combination.
With Forex trading becoming a more extended and desired
occupation for lots of people around the world, living with the
desire of working at home and still having the ability to gain a
full time income, the need for accurate trading systems and
techniques has become a major necessity for all these new Forex Traders
.
Among one of the important concepts a new Forex trader should
know is what a Moving Average means, how it's calculated and
what its use as a trading indicator is.
Moving Average is defined as a technical indicator that shows
the average value of a particular currency pair over a
previously determined amount of time. This means, for example,
that prices are averaged over 20 or 50 days, or 10 and 50 min
depending on the time frame you are using at the moment of your
trading activity.
As an averaged quantity, MA's can bee seen as a smoothed
representation of the current market activity and an indicator
of the major trend influencing the market behavior.
This smoothing effect of the Moving Average is very helpful when
the trader is looking for getting rid of the "noise" in the
price fluctuations of the currency pair he is trading at the
moment and a more precise emphasis in the trend direction is
required.
The basic mechanics of how Moving Averages can tell you where
the Forex market is moving (up or down), at the moment of your
analysis is by considering two different time frame Moving
Averages and plotting them on the Forex chart. It is very
important that one of these MA is over a shorter time period
than the other one; let's say one will be over a 15 days period
and the other over a 50 days period. Most trading station
software available by a number of brokers will let you do this
plotting and much more.
Once you have plotted the two Moving Averages, you will notice
points of crossover where the shorter time period MA will cross
above the longer time period MA indicating an upward trend in
the market, or if the crossing is below the longer period MA
that will be an indication of a down trend in the Forex market.
So from this simple concept you can commence to understand the
basics of confirming trends when checking your Forex charts
during your trading hours.
About the author:
Adrian Pablo is a Forex freelance writer with articles published
in a number of places.
Written by: Adrian Pablo
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