Understanding Moving Average for Trading
How to use Moving Averages effectively for Intraday, Momemtum and position Trading.
Forum on trading, automated trading systems and testing trading strategies
Indicators: Custom Moving Average
newdigital, 2013.07.31 07:53
Short-term Forex Trading with Moving Averages
Short term trading will use short period moving averages such as the 10 and 20 moving average.
In the example below we use 10 and 20 moving averages to generate Forex
signals; the signals generated are able to identify the trend as early
as possible.
Scalper Trading Using Moving Averages
One of the most widely used method of technical analysis used to trade
price fluctuations in scalp trading is the use of moving averages.
moving averages is an indicator that provides a profitable chart
structure for scalp trader.
The idea behind moving averages is to simply enhance analysis before
taking a signal to enter the market. Planning and setting goals in the
short-term according to moving averages helps a trader to identify
interests in the market and thus trade accordingly.
Most of the targets can be established using a specific period on MA.
The moving averages determines whether the trader will scalp in a
short-term long-term. In addition, the price action above or below the
price determines the state of the market for the trading day.
If a large part of the price action is considered to be below the MA,
then bias trade/forex trend for the day is short. Most traders the use
the MA as support or resistance to determine where to enter a trade, if
price touches the MA in the direction of the forex trend a trade is then
opened.
The moving averages are plotted and the intersection point with the
price action can be used to determine the appropriate entry and exit
times in the market. Since there is always oscillation in the forex
trends and activities of the price action on the market, the price will
repeat this process of oscillating and bouncing off the MA and this can
be used to generate forex trading signals.
Scalp trader use moving averages define the price floor in an upward Forex trend and price ceiling in a downward Forex trend.
Simple moving averages are calculated and their approach is based on the
observation of price within a particular period of time using
sufficient data to calculate the moving averages is what moving average
are all about? The interpretation of the moving averages has provided
many scalp traders with lots of tips on how and when to trade a
currency.
Medium-term Trading with Moving Average
Medium term trading will use the 50 period MA.
The 50 period MA acts as support or resistance level for the price.
In an uptrend the 50 period MA will act as a support, price should
always bounce back up after touching the MA. If price closes below the
MA then it is an exit signal.
50 period MA Support
In a downtrend the 50 period MA will act as a resistance, price should
always go down after touching the moving average. If price closes above
the moving average then it is an exit signal.
50 Day Moving Average Analysis in the Forex Market
As your currency pair moves up in price, there is a key line you want to
watch. This is the 50 day moving average. If your currency pair stays
above it, that is a very good sign. If your currency pair drops below
the line in heavy volume, watch out, there could be reversal ahead.
A 50 day MA line takes 10 weeks of closing price data, and then plots
the average. The line is recalculated everyday. This will show a
currency pair's price trend. It can be up, down, or sideways.
You normally should only buy currency pairs that are above their 50 day
MA. This tells you the currency pair is trending upward in price. You
always want to trade with the trend, and not against it. Many of the
world's greatest traders, past and present, only trade or traded in the
direction of the trend.
When a successful currency pair corrects in price, which is normal, it may drop down to its 50 day MA.
Winning currency pairs normally will find support over and over again at
that line. Big trading institutions such as mutual funds, pension
funds, and hedge funds watch top currency pairs very closely. When these
big volume trading entities spot a great currency pair moving down to
its 50 day line, they see it as an opportunity, to add to, or start a
position at a reasonable price.
What does it mean if your currency pair price slices downward through
its 50 day line. If it happens on heavy volume, it is a strong signal to
sell the currency pair. This means big institutions are selling their
shares, and that can cause a dramatic drop in price, even if
fundamentals still look solid. Now, if your currency pair drops slightly
below the 50 day line on light volume, watch how the currency pair acts
in the following days, and take appropriate action if necessary
Long-term Trading with Moving Average
Long term trading will use long period moving averages such as the 100 and 200 moving average.
These moving averages act as long term support and resistance levels.
Since many traders use the 100 and 200 moving averages price will often
react to these support and resistance levels.
Learn about the 200 day MA
In Forex Trading, investors can use both fundamental analysis and
technical analysis to help determine whether a currency pair is a good
buy or sell.
In technical analysis technique traders looking to gauge supply and
demand for a currency use the 200 day moving average to examine data in
different ways.
Traders are most familiar with the basic analysis of MA. The 200 day
moving average is used to plot the long term support or resistance
level. If price is above 200 day MA then price is bullish, and if it is
below then it is bearish.
One of the ways to measure supply and demand is to calculate the average
closing price over the last 200 trading sessions. this accounts for
each day going back in time and shows how this 200 day average has moved
hence the term 200 day MA.
The reason why the average 200 day MA in particular is so popular in
technical analysis is because historically has been used with profitable
results for trading in the forex market. A popular timing strategy is
used to buy when price action is above its moving average of 200 days
and sell when it goes below it.
With individual currency pairs, investors can benefit from being
notified when a currency pair rises above, or falls below its 200 day
Moving Average and then use fundamental analysis to help determine if
the signal is an opportunity to go long or short.
Forum on trading, automated trading systems and testing trading strategies
Indicators: Custom Moving Average
newdigital, 2013.07.31 07:58
20 Pips Price Range Moving Average Forex Strategy
The 20 pips price range moving average strategy is used with the 1 Hour
and 15 minute Trading charts. On this chart time-frames we use the 100
and 200 simple moving average indicator.
Both the 1 Hour and 15 minute chart time-frames will use the 100 and 200
SMA (SMA Indicator) to determine the direction of the Forex trend.
The 1 Hour chart time-frame checks the long term direction of the Forex
trend, upward or downward trend, depending on the direction of the
moving averages. All trades taken should be in this direction.
We then use the 15 minute price chart to find the optimal point to enter
trades. Trades are opened only when the price is within 20 pips range
of the 200 simple MA, if price is not within this pip range trades are
not opened.
Buy Signal - Forex Uptrend/Bullish Market
To generate Forex buy (bullish signals) using the 20 pips moving average
Forex trading strategy, we shall use the 1hour and 15 minute chart
time-frame.
On the 1 hour Forex chart time-frame the price of the currency pair
should be above both the 100 and 200 simple moving average. We then move
to a lower chart time-frame, the 15 minute chart time-frame to generate
a trade signal.
On 15 minute chart time-frame, when price reaches the 20 pips range
above the 200 SMA, we open a buy trade and place a stop loss 30 pips
below the 200 SMA. Stop loss can be adjusted to the amount of Pips that
are suitable for your risk but to avoid being stopped out by normal
Forex volatility its best to use 30 pips stop loss.
A buy trade can also be opened when price touches the 100 Simple moving
average, provided it’s not very far from the 200 SMA. Normally the 100
SMA will be within the 20 pips range of the 200 SMA.
Sell Signal – Forex Downtrend/Bearish Market
To generate Forex sell (short signals) using the 20 pips moving average
Forex trading strategy, we shall also use the 1hour and 15 minute chart
time-frame.
On the 1 hour chart time-frame, the price should be below both the 100
and 200 simple moving average. We then move to the 15 minute chart
time-frame to generate a Trading Signal.
On 15 minute chart, when price reaches the 20 pips range below the 200
SMA, we open a sell trade and place a stop loss 30 pips above the 200
simple moving average.
With this method price will generally bounce of these levels because
many traders watch these levels, and open similar trades at around the
same point.
These levels act as short term resistance or support levels within the currency price charts.
Profit Taking level For This Trading Strategy
With this trading strategy the price will bounce and make a move in the
direction of the original Forex trend. This move will range from 70 -
100 pips.
The best profit taking level would therefore be considered to be 80 pips from the 200 simple moving average.
Forum on trading, automated trading systems and testing trading strategies
Indicators: Custom Moving Average
newdigital, 2013.07.31 07:48
How to choose a moving average to trade with
A trader can choose a moving average based on the time frame that he is
trading; the trader might choose the moving average to measure minute
chart, hourly charts, day charts or even weekly.
The trader can also choose to average the closing price, opening price or median price.
Moving average is commonly used devices to measure strength of trends.
The data is precise and its output as a line can be customized to ones
preferences.
Using the moving average is one of the basic ways to generate buy and
sell signals which are used to trade in the direction of the trend,
since the moving average is a lagging and a trend following indicator.
The Moving average indicator as a lagging indicator means that it will
tend to give late signals as opposed to leading indicators. However, the
Moving average as a lagging indicator gives more accurate signals and
is less prone to whipsaws compared to leading indicators.
Traders choose the moving average period to use depending on the type of trading they do; short-term, medium-term and long-term.
Short-term: 10 -50 Period Moving Average
Medium-term: 50 - 100 Period Moving Average
Long-term: 100 - 200 Period Moving Average
The period in this case can be measured in minute chart, hourly charts,
day charts or even weekly. For our example we will use 1 hour period.
Short term moving averages are sensitive to price action and can spot
trends signals faster than the long term moving averages. line more
closely than a long term (200 period) average. Shorter term moving
averages are also more prone to whipsaws compared to long term ones.
Long term averages help avoid whipsaws, but are slower in spotting new trends and reversals.
Because long term moving averages calculate the average using more price
data, it does not reverse as fast as a short term moving average and it
is slow to catch the changes in the trend. However the longer term
moving average is better when the trend stays in force for a longer
time.
The work of a trader is to find a moving average that will identify
trends as early as possible while at the same time avoiding fake-out
signals (whipsaws).