Moving averages are one of the most commonly used technical indicators in forex trading. The moving average helps traders to track the overall pricing trend of a currency. It is called a moving average because it incorporates the new pricing data as it develops.
The main objective of moving average is to give you a simple view of the trend. The moving average can reduce the amount of “noise” and the chart and give you a simple direction to base your trades on.
Time Period Options
Moving averages come in several different flavors. They can be adjusted for the level of average that you want. If you are trading on an hourly chart, you can set a moving average that will give you the average price over the past 8 hours. This is called an 8 period moving average. Traders develop their own theories on what average works best for them. It’s best to experiment with different settings until you find one that makes sense to you.
Types of Moving AveragesSMA – Simple Moving Average
A simple moving average is the most basic style of moving average. It simply tracks price data as it occurs and gives you the average direction based on the time period you select.WMA- Weighted Moving Average
A weighted moving average focuses on more recent price action. The moving average line will consider recent price movements to be more important than older price movements. This is also commonly referred to as an exponential moving average or EMA.
Using moving averages alone is not a catch all solution, but they will help you determine the overall trend. Used in conjunction with your other preferred technical indicators, they are an asset to any trading system.