Moving Averages

Moving averages provide important information regarding the direction of a market. They were created to provide directional information, smoothing out the zigs and zags of a trend. Their use has become much more predominant with the advance of computer software. The automatic calculations for MAs (moving averages) have greatly simplified their applications.



They can now be calculated and utilized up to the very second/minute in a trading chart. Their applications, along with candlestick signals, provide a very strong profitable trading format. As with all other technical indicators, MAs have a relevance when correlated to price movement. How the moving averages are utilized can make a big difference between moderate returns and highly profitable returns. Trading techniques, using moving averages, provide improved entry and exit strategies. ( see here more forex strategies )

The most common use is when the relevant moving averages cross. The feasibility of using MAs "crossing" apparently has some relevance or it would not be widely known as one of their useful aspects. However, the benefits of moving avenges become greatly diminished if "crossings" are the only application used. The accuracy of the crossing analysis is moderately successful. However, there are many technical evaluations that are moderately successful. Applying Candlestick analysis in relation to the MAs provides a higher function.

The question always arises whether to use the simple moving average (SMA), the exponential moving average (EMA), or the weighted moving aver-age (WMA). The simple moving average is the easiest to calculate; therefore, the reason it was well used before the presence of computers. The exponential moving average has become more popular in recent years due to the quicker calculations computer software provides. It incorporates the latest data in its calculations, allows the older data to fade out, making the current data more pertinent. Weighted moving averages put more importance on current data versus older data.

Simple moving averages work very well, providing the information required to successfully trading candlestick signals. Money managers, as well as a majority of technical investors, use the simple moving average. The moving averages provide a simple visual indicator that shows the direction of a trend's slope. When the moving averages are rising, it indicates an uptrend. When the moving averages are falling, it indicates a downtrend. If the moving avenges are trading sideways, it reveals a sideways market. Traders that use the moving average method for indicating trends follow some very basic rules.

1. If the SMA is trending up, trade the market on the long side. Buy when prices pullback to, or slightly below, the moving average. After a long position is established, use the recent low as your stop.

2. If the SMA is trending down, trade the market to the short side. Short (sell) when prices rally to or slightly above, the SMA. Once a short position is established use the recent high as your stop.

3. When the SMA is trading flat or oscillating sideways, it illustrates a sideways market. Most traders, utilizing the moving average to deter-mine trends, will not trade in this market

Simply stated, traders that use the SMA as a trend go long (buy) when prices are trending above the moving average. They will go short (sell) when prices are trending below the moving average. The candlestick trader has an immense advantage of being able to see what the candlestick signals are telling them at these important moving average levels.








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