The Method of Moving Average Indicator Use on Forex
Traders are constantly looking for a tool that will accurately indicate
the time you need to enter into a transaction to buy or sell. Regardless
from the fact that all professional traders apply individual trading
strategies, that have been repeatedly proven, they are still constantly
looking for simple methods to work effectively on the Forex market.
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The use of the simple methods indicates a decrease of the losses and
increase revenue. Moving Averages deservedly belongs to such
instruments, because they are used in trading on the foreign exchange
market by most of the traders to eliminate the noise and to find points
of entry and exit from the market.
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Location of the MA indicator in the terminal |
Settings of the MA indicator |
The moving average shows the average price of a currency pair over a
certain period of time. When calculating the MA , a mathematical
calculation for a certain period of the average price of a currency
takes place. Upon the change of the price, its average value is also
subject to change either down or up.
MA on the chart shows the average price of a particular currency pair
for the previous period, i.e. it smooths the price chart. With a higher
number of periods for which the average is calculated, the corresponding
chart will be more smoothed. Moving Averages curves are usually
constructed on the basis of the closing prices of currencies, although
they can also be calculated on the base of the average of "High", "Open"
and "Low".
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Methods of creating the MA indicator |
MA indicators calculating variants |
In such cases where the period is selected as a short interval, the
close price of the candle in the moment of the end of the selected
period is used for building MA curve. Methods of using of this MA will
depend on the length of the selected period.
In a shorter period, MA responds more quickly to price changes in the
currency pair, however, at the same time, it will not be enough just to
filter "noise". For a longer period, the moving average will neutralize
the impact of the noise, but the respond to the trend changes will be
with delay.
In the role of the technical indicator traders, in real life, the Moving
Average is most commonly used. Usually these trading platforms like
MT4, which is used to trade on demo and real Forex accounts, 4 types of
moving averages are presented: simple, exponential, smoothed and linear
weighted moving average.
MA smooths price data to form a trend indicator. They will not predict
price direction, but will determine the direction of price movement
acting belatedly. Moving averages are starting to lag behind current
prices, because their value at all time periods are based on the results
of which currency had showed before. Regardless of this lag, moving
averages can help smooth the change in prices of a currency pair and
filter out noise.
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Settings of the MA indicator on the chart |
This moving is considered the basis for many technical indicators, for
example, MACD and Bollinger Bands. Simple and Exponential Moving can be
used to determine trend direction, points of exit and entry into the
market.
As the other indicators, MA are used for facilitation for the trader
ability to project future prices. Considering the angle of the slide,
you are more likely to determine the direction and strength of the
potential price movements in the currency market.
As already has been mentioned, this technical indicator refers to the
main indicators of the Forex market. However, until such time as you do
not decide for themselves, with clear rules of moving averages at work
on demo accounts, it is not necessary to open a real trading account.
Since otherwise the chance to be among the losers will increase
considerably.