Another very useful tool that is usually found in all the Forex
platforms toolbox is the moving averages options. Needless to say a moving
average is a trending line that helps you gauge the market direction and the
market main movements as it is being developed. As always, these tools help you
make sure you are on the right track but should not be used in isolation to
determine an entry in a trade unless extensively studied and well educated
about these tools potentials.
In Forex moving averages are also known as rolling averages, for
the meaning of a running average. This is a sum that continues to develop as it
progresses during the trading session and will change direction all the time
during your trading session.
Moving averages in Forex are usually either ‘simple’ or
‘exponential’ as the most common although other variations namely weighted
moving average and cumulative are also used but a little bit less, we shall get
into an overall understanding in order to help you understand a little bit more
their use and application in your trading plan. When applied a Forex moving
average tries to clean as much market noise as possible to help the trader
identify the main market movement rather than the occasional market spike. You
can use moving averages in Forex to identify reversals, trend ending or trend
starting patterns.
As already told, usually you do not have to learn how to draw or
create the lines yourself as most modern trading platforms would have these
tools made available to you as a click, where all the lines are drawn for you
to maximum accuracy and perfection.
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Understand that Forex moving averages are used in conjunction to a
timeframe and you need to usually use higher timeframes in order to understand
strong patterns rather then just smaller market moves which might be
insignificant to the trade. Smaller timeframe decisions sometimes can result
into exiting early from a potential trade that would be going where your
research had planned!
Make good use of moving averages when trading Forex and apply them
to your trading strategy, remember to always back-test in order to get familiar
with the tools before entering any live trades.
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