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Moving Averages (MAs) are among most commonly used indicators in Forex. They are easy to set and easy to interpret.
Speaking simple, moving averages simply measure the average move of the price during a given time period.
It smooths out the price data, allowing to see market trends and tendencies.
How to use Moving Averages
Moving Average is a trend indicator.
Besides its obvious simple function a Moving Average has much more to tell:
In Forex moving average is used to determine:
1. Price direction – up, down or sideways.
2. Price location – trading bias: above Moving average – buy, below Moving average – sell.
3. Price momentum – the angle of the Moving average: rising angle – momentum holds, falling angle – momentum pauses or stops.
4. Price support/resistance levels.
Types of Moving Averages
SMA – Simple Moving Average – shows the average price for a given period of time.
EMA – Exponential Moving average – gives priority to most recent data, thus reacts to price changes quicker than Simple Moving Average.
WMA – Weighted Moving Average – puts emphasis on most recent data an less – on older data.
Most common settings for Moving Averages in Forex
200 EMA and 200 SMA
20 EMA and 20 SMA
10 EMA and 10 SMA
Try and test and then choose your favorite set of Moving Averages.
Moving Average Video Presentation
Other versions of Moving Averages
Besides traditional EMA, SMA and WMA indicators, there are several other types of MAs available to Forex traders:
Displaced Moving Average (DMA) is your regular Moving average with only difference that it’s been shifted in time (either backward or forward).
To make DMA we add the “Shift” value:
A negative value would mean a shift backward – so that your Moving average will stay behind the price N number of intervals. Such Displaced Moving average is able to contain the price in a trend better.
A positive value would cause a shift forward – such Displaced Moving average becomes a leading indicator, which to some extent helps to anticipate next moves.
I used 5ema, 10ema and 20ema. and when the 5ema cross above both 10and20ema. i enter Long and vise versa. please tell me is it ok. cos am new to forex trading. Awoooooooooooo
It’s certainly Ok. It’s a well known technique in trading.
can anyone tell me what are the best proven moving average based on your experience
Depends what you want from it.
Faster trends – 20 SMA, mid trends – 50 SMA, longer trends – 100 or 200 SMA.
If you want to use the Moving average not just for finding trends, but to actually give you quick buy/sell signals, then you’ll need a smaller MA – 10 EMA is one that’s used the most.
Hi,i’m jeffryloo your explanation is very easy to understand.I give you 5 start.
Like you I use the 50,100, 200 MAs but, make the 100 exponential. The 50 provides great trend info and all three provide excellent dynamic support/resistance. I know this may sound crazy but, for me the best short term average is a channel made of the 8 Smoothed MA high and the 8 Smoothed MA low. This provides excellent trend direction and helps alert you to sideways movement and assist in determining breakout. This also provide superior dynamic support/resistance. Obviously, this does not rely on a cross but, more on price action relative to the channel which is very powerful when combined with a couple of indicators such as RSI ATR. I make them each a different color just to make it easy to spot the high and low of the channel. Thank you for providing indicators and explanations hard to find anywhere else. You have helped me more than you can imagine.
Can the management tell m or anyone with proficient forex trading experience. what are the best either EMA or SMA and numbers for trading the 15 minute charts with a long term 6/8 hours up to 12 hours outlook market direction.
Plus if you could also explain better please precisely what is meant by the above herein blog post regarding the screen shot of the Displacement Moving Average ( DMS ) settings mean. ie: Is it number relevant to the time frame chart one trades on and those respective number of candle sticks +3 forward in the market ( ahead of the current market price ) and or respective negative -3 number of candle sticks behind the current market price. Many thanks John
if you want a smoother MA – SMA would be better.
If you need s faster MA – take EMA.
Smoothing out helps to avoid some false spikes, but it also delays entry and exit signals.
While with EMA you’ll have much faster response to price changes, but it will come at an increased rate of false signals. That’s the difference. All depends on one’s trading system, where both EMA and SMA can be used effectively for trading on 15 min TF.
-10 Shift for the Moving average simply shifts the indicator X number of bars on the chart for the current time frame:
“minus ten” would mean that the shift is 10 bars behind, “plus 10” would shift it 10 bars forward.
Thanks for your great job!
Hi. I have just a quick question. Is it possible to negatively displace a given Moving Average; and still have the line (MA) show on the current candle rather than lag behind the number of displaced candles/value. I don’t think this is possible on MT4, if so is there a separate indicator that can do just this?
Thanks and I hope my question is clear enough?