Tuesday, 11 October 2011

Basic Knowledge of Moving Averages Indicators

By Garry Ikoku


Should you make decision to invest your time and money in forex trading business as individual investor or trader, it is better if you spare some time to learn and try to master couple indicators that known to most traders all around the world. These indicators are so simple yet they are quite powerful to help you predict the market. They can be use in conjunction with other indicators or they can be use individually. It is the moving averages. These indicators are very important to help you determine the current trend, and to help you in making better decision.

There are three different of averages that known to public, they are simple, weighted, and exponential moving averages. If you are setting up the simple average, it will equally treat the prices on the chart. While with the weighted and exponential averages, they are giving movement that is more responsive that move along with any movement detects from the price. These averages tend to make price action to move smoother so it is easier to understand and predict.

The longer time period averages move slower than the simple one. It move smoother too. People are using this average in conjunction with the short time period which move faster, and act as the go signal for trader who are using it for entry signal. The longer time period average is mostly use by long-term traders because it gives them more reliable signals.

When the short period moving average cross above the longer period, this give us indication to just look for long position. When the longer period average is crossing above the slower one, you should only look for short trades.

Futures investors use mostly the combination like the 4,9 and 18 period averages. Stock investors are using like the 40 day, 100 day and 200 day averages to help them in determining the current trend, generate signals etc. The use of these crosses are like when the short period crosses the medium one, this can gives trading signal but it is not yet confirmed. Only when short has crosses medium, and long, the signal is confirmed and good to go. These are the basic theory that been use in the MACD indicator too.




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