Forex trading is a business that fluctuates now and then and a trader must expect to either win or lose. There are various strategies that a trader could learn to perfect their game in the forex trading business. Moving Average (MA) is one of the strategies that one could use and apply when trading in the forex market.
Moving Average is defined as a line that gives a forex market trader an idea of which way the forex markets are moving and uses a line to indicate that. This strategy usually indicates the trends in the market and also help in identifying resistance and support levels. Moving Average strategies are a very fundamental market price indicator and are widely used by analysts in the technical field.
Moving Average strategies can be used for detecting trading signals and analyzing the market prices. These are two important aspects that a forex market should keep him or herself updated on.
Types of Moving Averages in Forex Trading
This article will highlight four types of Moving Average strategies that are basic and highlight ways in which they can help a forex market trader in the trading game. These types are simple moving average, linearly weighted moving average, smoothed moving average, and exponential moving average.
Simple Moving Average
This is one of the most common Moving Average. It is defined as the market price that is average over a given period. Simple Moving Average compares the prices in the forex market and this comes in handy for the forex trader to determine where to invest at a particular time.
Just as the word suggests, a Simple Moving Average is the simplest trading strategy among all under the Moving Average trading strategies.
Linearly weighted Moving Average
This is an advanced Moving Average strategy that not many forex market traders use and apply in their trading game. It is a trading strategy that gives more weight to the prices in the latest data in the forex markets.
Smoothed Moving Average
This type of Moving Average strategy checks into the history of prices in the forex market and not only in the current set period. More weight is however given to the current data but the data of the past market prices also affect the results in the end.
If for instance the Linearly Weighted Moving Average moves more smoothly and tends to be closer to the chart of the market prices than the smoothed Moving Average within the exact period then the smoothed Moving Average will tend to be termed as remote.
The Smoothed Moving Average is used in rare cases of any trading strategy and is majorly used and applied in automated trading systems that are complex or are comprised of custom indicators.
Exponential Moving Average
The trading strategy responds faster to market price changes as compared to simple Moving Average, Linearly weighted Moving Average, and smoothed Moving Average. There are six steps in the exponential Moving Average trading strategy. They include: Placing a target of getting a profit of 20 pips and if not, that exiting when the 20 is superseded by the five that moves above it.
Another option would be moving to break the stop loss even when there is a profit of 10 pips. Plotting three moving averages under exponential is also another step where you get a 20- period exponential Market Average, a 5- period exponential Market Average and a five-period exponential Market Average.
Other types of Moving Average forex trading strategies are Average Ribbon trading strategy, Envelopes trading strategy, and Guppy Multiple trading strategies.
When one gets into the forex market trading, they want to get the best out of the trading game. Moving Average trading strategy is very key as they outline to a forex market trader what goes in This article looked at four basic types of moving average in forex trading.
The four types are simple moving average, linearly weighted moving average, smoothed moving average, and exponential. A trader should understand each of the Moving Average trading strategies for the use and application while he is trading.