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How Moving Averages Can Help Forex Traders

As far as the popularity of Forex trading grow, for more and more people around the world it becomes a desirable occupation. People interested to work at home and to gain the same income as from full-time job need the exact trading that will help to make successful transactions.

Besides other important concepts, the Forex trader-beginner has to know how the moving average is calculated and how to apply it to the trading strategy. Moving average is the technical analysis indicator which shows the average cost of a concrete currency pair for a time period previously defined. It means, that the average price in 20 either 50 days or 10 or 50 minutes, depending on time frames, which you use in the present trading activity, will be defined.

As the average entity, moving average can be considered as a smooth representation of the current activity of the market and the indicator of the main trend influencing the behavior of the market.

Such smoothing effect of moving average is very useful when the trader tries to get rid of price fluctuations "noise" and it is required to place more exact accents in the direction of a trend.

The main mechanism of moving average use for forecasting changes in the market (growth or falling) through the analysis in a concrete time point – consideration of two time frames for moving averages and construction of Forex graphics. It is very important that one of such moving averages was calculated for a shorter period, then another. For example, one will be calculated for 15 days, and another for 50 days. The majority of Forex trading programs will allow you to construct such schedules.

Once you have calculated and applied both moving averages on the schedule, you will be able to note points of intersection in which the moving average for the short period will cross moving average for the long period in the direction that speaks up about the ascending trend in the market. Or crossing of moving average for the long period of moving average for the short period in a downward direction that speaks about the descending trend in the market.

You can start your education of trend confirmation using this simple concept.

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Number of comments: 2
  • Johnyeah
    • #

    I always use Moving Averages, actually, I think that it is one of the most reliable indicators. Especially in combination with fundamental analysis, it can boost the profitability of your trading very fast.

  • Martin
    • #

    What concerns me, Moving Averages is a very useful technical indicator. I also use RSI, it helps me a lot.