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So, today we look at the Moving Averages Indicator.
You have probably heard of this one before.
This indicator happens to be the most popular technical indicator among stock and Forex traders.
Chances are that you will have to use this indicator regularly, which is why you need to know a thing or two about it.
Basically, the value of this indicator is determined by calculating the mean of price values over a period into the past.
It could be the last 20 days, 14 hours, 52 weeks, and so on.
It doesn’t really matter.
You should also note that when two of these indicators are used within the same graph, the indicator with the shorter time period is called the faster moving average, which also happens to be the moving average line closest to the actual prices on the chart.
When a price reversal occurs, the actual prices move away from the moving average line.
This is usually a good time to close a trade, open a trade in the opposite direction, or even adjust the protections on your trade.
Still, you should wait for the candle to cross from one side of the moving average to the other, at which point you should enter a trade in the direction of the currency pair prices.
When the candles cross over again in the opposite direction, you should exit the trade, or open a trade in the opposite direction.
Meanwhile, you can use support and resistance levels to protect your trade from unexpected price movements.
Don’t be fooled though.
The moving average indicator is not without its setbacks.
For instance, when you use a very short of a time-frame, say 5 minutes, you will end up with several false signals.
You should also not that this indicator does not offer quality signals in a sideways market.
However you do have the option of using an additional moving average, which should be faster or slower.
This way, you can avoid getting whipsawed every now and then by trading only when the faster moving average crosses over the slower moving average.
You should also avoid making any trades when the actual prices are far from the moving average lines since a reversal is usually about to happen.
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