The Moving Average (MA) is one of the most versatile and widely used technical indicators in forex trading. It helps traders identify trends and potential support/resistance levels by smoothing out price action over a specified period.
What is a Moving Average?
A moving average calculates the average price of a currency pair over a defined number of periods. As new price data becomes available, the oldest data point is dropped, and the average “moves” forward.
Types of Moving Averages
- Simple Moving Average (SMA)
- Exponential Moving Average (EMA)
- Weighted Moving Average (WMA)
How to Use Moving Averages
- Trend Identification: When price is above MA, it indicates an uptrend; below MA suggests a downtrend
- Support/Resistance: MAs often act as dynamic support/resistance levels
- Crossovers: When faster MA crosses above/below slower MA, it can signal potential trend changes
Common Moving Average Strategies
- Golden Cross (50 MA crossing above 200 MA)
- Death Cross (50 MA crossing below 200 MA)
- Multiple MA combinations (10, 20, 50, 200)