Moving Average trend definition

Moving Average trend definition

Moving Averages forex

In the course of trade in Forex, almost all traders turn to the indicators. One of the most popular Moving Average trend indicators is the Moving Average (moving average). Mathematically, the moving average is characterized by a single parameter - the period of anti-aliasing and is neither more nor less than the arithmetic mean of prices over this period.

As practice shows, as a Moving Average trend smoothing period can take any number, representing the natural cycles of any process (eg, 5 - the number of working days per week or 22 - the number of working days per month), or use the Fibonacci numbers. It is worth noting that the second option is more popular.

By the method of Moving Average trend calculation of the indicator are the following types of moving averages:

1 Simple Moving Average (Simple Moving Average - SMA) - averages prices over a specified period of smoothing of time units.
2 Weighted Moving Average (Weighted Moving Average - WMA) - the calculation of more recent prices have more weight and therefore have a greater impact on the behavior of the Moving Average trend indicator. In my opinion, is the worst option of all types of removals. In practice, shows poor results, although my opinion may be subjective.
3 Exponential Moving Average trend (Exponential Moving Average - EMA) - prices last values ​​also have a greater influence, but in contrast to the WMA, this type of moving is more mobile and sensitive to price. This type of moving averages use most often, as in practice, get pretty good results.

On the chart for comparison, all 3 types of moving averages with a period of 21


The larger the Moving Average trend smoothing period, the slower the indicator responds to changes in the prices of currency pairs. Therefore be divided moving into "fast" and "slow" (sometimes you can hear the terms "light" and "heavy"). Fast is considered to be moving from a period of 3 to 34, slow - from 55 and above. Methods of application of the trade from them, respectively, are also different. For example, if the fast Moving Average trend should be used to find the optimal point of entry into the market or the position is closed, the heavy movers are often seen as a strong dynamic support or resistance levels.

At the 4 hour chart USD / JPY is clearly visible, as the price bounces several times on the slow moving average with period 89


There are several classic methods of trade moving average:

Moving Average trend definition : If the price crosses the MA quickly upward, then it is signal to buy if from the top down - a signal to sell.
For this strategy, in my opinion, the best use of EMA with a period of 21. Do not forget about the "noise" prices, which for the time schedule of 15-20 points. This will help avoid discovery of false alarms.

If the fast Moving Average trend crosses the slow down - a signal to sell, if the bottom up - a buy signal.
As shown by my practice, good results are obtained using the EMA (21) and EMA (55). It should be noted that the deal opened by this method remains in the market for quite some time - an average of 60 time units of your timeframe (ie if you are working on H1, be aware that the transaction will be open 2-3 days, and or more). It is also highly effective in this strategy, is to use trailing stop in the final stages of transactions.

Thus, the analysis of Moving Average trend helps determine the state of the market and gives signals based on which a trader can make trades.

Do not forget that Moving Average trend has its drawbacks. First, the calculation is based on previous prices, so light - delayed. Therefore, a signal entering or exiting a position comes a bit later, because of what the lost part of the trend movement, which could potentially make a profit the trader. In part, this problem can be solved by decreasing the period of the smoothing indicator, but this in turn is fraught with an increase in the number of false alarms. Second, if the market is sideways price movement, it is best to refrain from using the indicator Moving Average. In the flat Moving Average trend are absolutely useless - their use will lead to a huge number of false alarms, and, consequently, a loss. I therefore recommend that "filter out" signals Averages other indicators.

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