All about investment

by kelly price

Moving averages are a great trading tool to use in any financial market and that includes forex. Being involved in forex education for 25 years, I would say that most traders simply don't use this tool correctly - but if you do, they can enhance your forex trading success.

Moving averages (regardless of the time period used) all have the same objective:

They identify trends over specific durations and they smooth out the day-to-day price fluctuations, that are a caused by short term volatility.

This help you see the longer term trend and look for entry points for your trading signal. The equation for any moving average is:

The closing price is added up and divided by the period the moving average is covers.

Periods

200 Day moving averages are popular for tracking longer term trends and 20, 40 and 60 Day moving averages for tracking the intermediate trend.

Shorter Periods are used and many forex traders will calculate moving averages within a day in hourly or minute time frames.

Moving averages are one of the simplest and most popular used by traders interested in technical analysis. The problem most traders have is using them the right way and they normally one or all, of these common errors.

Buy On Dip to the Moving Average

They see it approach the level and simply buy - well that is not going to help them make money as they are predicting (another word is hoping) the level will hold and of course in many instances it does not. You have to combine moving averages with moving averages - to prove the level will hold on your forex chart before entering.

To do this use simple momentum oscillators like RSI and stochastic and wait for them to show the level has held and then execute your trading signal.

Moving averages give you areas of value; that's all and your forex trading system needs to prove these levels hold.

Using Them in Stupid Time Frames

With any indicator you use you have to have valid data and many forex traders trade time periods that are simply to short - stand up all forex day traders.

Moving averages, are of absolutely no use in time frames of under a day.

They don't really become useful until at least 10 days and we never use anything less than 20 days.

Another Great Use.

For moving averages is as a stop in long term trend following.

The 20 day average we use to spot normal corrections in a trend and buy dips but we exit on the 40 day moving average.

They are great for this.

Sure you miss the top but you get something more ,you stay out of the way of the random volatility and they can help you ride a big trend for months.

If you do this and keep in mind if you get 50% of every major trend you will be very rich!

Use them the right way

It's a fact that short term price spikes that move to far away from the longer term moving average will return to it, as they are the product of human emotion.

They are therefore a great tool for spotting value areas in the market on your forex charts. Use them with simple trend lines to isolate value areas and then use momentum oscillators to prove the level has held - then execute your trading signal.

Moving averages are a simple tool - but don't under estimate how powerful they can be in helping you enjoy currency trading success just remember - use them the right way.

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