Forex - Forex Trading - Currency Trading
  • Forex Brokers
    • Compare Forex Brokers
    • ECN/STP Forex Brokers
    • STP Forex Brokers
    • DMA/STP Forex Brokers
    • PAMM Forex Brokers
    • Metatrader 4 Forex Brokers
    • Metatrader 4 ECN Forex Brokers
    • Metatrader 5 Forex Brokers
    • Brokers With Free Forex Signals
    • Social Trading Forex Brokers
    • Bitcoin Brokers
    • Binary Options Brokers
    • NFA / CFTC US Forex Brokers
    • FSA UK Forex Brokers
    • Micro & Mini Forex Brokers
    • Forex Brokers For Scalping
    • Forex Brokers For Hedging
    • High Leverage Forex Brokers
    • Brokers With FX Managed Accounts
    • Forex Brokers With Free VPS
    • Gold,Silver & Oil Forex Brokers
    • Forex Brokers With Segregated Accounts
    • Brokers With Forex Demo Accounts
    • Best Forex Broker Bonuses
    • Forex Broker News
  •  
  • University
    • Online Forex Trading Course
    • Complete Forex Video Course
    • Forex Trading Tutorials
    • Learn How To Trade Currency Pairs
    • Candlestick Video Course
    • Forex Technical Indicators
    • Forex Chart Patterns
    • Forex Trading Tips
    • Metatrader 4 Tutorials
    • Metatrader 5 Tutorials
    • Free Trading Courses
    • Forex eBooks Collection
    • Forex Freebies
    • Forex Dictionary 
    • Forex Downloads
  •  
  • Trading Strategies & Systems
    • Simple Trading Strategies
    • Forex Breakout Trading Strategies
    • Price Action Forex Strategies
    • Elliott Wave Forex Strategies
    • Fibonacci Strategies
    • Fundamental Strategies
    • Trend Following Metatrader 4 Systems
    • Forex Scalping Metatrader 4 Systems
  •  
  • Articles
    • Technical Analysis
    • Forex Systems & Strategies
    • General Forex Knowledge
    • Forex Money Management
    • Trading Psychology
    • General Trading
    • Forex Trader Interviews
  • Tutorials
    • Trading Tutorials
    • Metatrader 4 Tutorials
  •  
  • MT4/5 Downloads
    • Metatrader 4 Indicators
    • Metatrader 5 Indicators
    • Metatrader 4 Expert Advisors
    • Metatrader 4 Systems
  •  
  • Products
    • FREE Forex Analyzer PRO
    • eToro Social Trading
    • Automated Forex Trading (ZuluTrade)
  •  
  • Charts
    • Real-Time Forex Charts
    • Real-Time Forex Rates
    • EUR/USD Forex Charts
    • GBP/USD Forex Charts
    • USD/CHF Forex Charts
    • USD/JPY Forex Charts
    • USD/CAD Forex Charts
    • AUD/USD Forex Charts
    • NZD/USD Forex Charts
    • EUR/JPY Forex Charts
    • GBP/JPY Forex Charts
    • EUR/GBP Forex Charts
    • EUR/AUD Forex Charts
    • EUR/CAD Forex Charts
    • AUD/JPY Forex Charts
    • CHF/JPY Forex Charts
    • EUR/CHF Forex Charts
    • GBP/CHF Forex Charts
    • USD/SEK Forex Charts
    • Gold (XAU/USD) Charts
    • WTI Crude Oil Charts
    • Silver (XAG/USD) Charts
  •  
  • Tools
    • Correlation Charts
    • Relative Strength Index
    • FX Performance Charts
    • Economic Calendar
    • Pivot Point Calculator
    • Forex Historical Data
    • Currency Converter
    • PIP Income Calculator
    • PIP Value Calculator
    • Risk Calculator
    • Fibonacci Calculator
    • Forex Income Calculator
    • Forex Risk Calculator
    • Banks Interest Rates
    • Movers and Shakers
    • Find A Forex Job
    • Forex Daily High/Low
    • World Clocks
  •  
  • $30 FREE
  •  
Bookmark and Share Print This Page   | Home > Complete Forex Trading Video Course

The Moving Average

Written by Informedtrades.com


Module Module 12: Technical Indicators Explained
Lesson 2: The Moving Average
Back to complete forex trading video course.


Previous Lesson Next Lesson

Forex Video Text Version

In our last lesson we gave an introduction to technical indicators which started our latest series of lessons on how to use these in your trading. In this lesson we are going to start with looking at one of the most popular technical indicators, the moving average.

There are several different types of moving averages which we are going to explore here, all of which are used by traders to try and smooth out the price action of a financial instrument, and get a better feel for the longer term direction without all the noise that is often associated with just looking at price. In addition to getting a better feel for the longer term trend of a financial instrument, moving averages are also used to spot potential support and resistance levels, and are often used in conjunction with one another to generate buy and sell signals.

Before we get into the details however, let’s first have an overview of the two main types of moving averages: the simple moving average and the exponential moving average.

The Simple Moving Average:

The simple moving average is the most basic of the moving averages and is calculated by taking the past x number of points averaging them, and then plotting the resulting line on a chart. The reason it is called a moving average is because as new data points become available the average moves forward to incorporate the new data point and drops the last data point in the series.

For example, if a trader plots a 10 day moving average on a chart the last 10 days of trading are averaged to come up with the most recent point plotted on the moving average line on the chart. On the next day of trading the data point which occupied the first day used in the above moving average is dropped from the equation, the data point which was day two in the equation becomes day 1, and the next day of trading becomes the 10th data point in the equation.

Here is what a Simple Moving average Looks like on a Chart:



Here is an example of how it is calculated:

Data Point 1


Data Point 2


I included this example here so you can simply have a basic understanding of how the average is calculated, however any charting package which you use should automatically do the calculations for you.


The Exponential Moving Average:

Critics of the simple moving average argue that it is too simple in the sense that it gives the same weight to each point in calculating the moving average. The problem with this it is argued is that the more recent data points deserve a greater weighting in the formula as they are more relevant to the future price action of the instrument.

To solve this problem traders came up with the exponential moving average, which gives more weight to the more recent price points in calculating the moving average line. Whatever chart package that you end up using should automatically calculate the exponential moving average for you but for those who want to know the formula for doing so is below:


Exponential Moving Average Calculation:


Source: Wikipidia.org

Example of an Exponential Moving Average Plotted on a Chart


When the simple moving average and the exponential moving average are plotted together on a chart you can see that the exponential average reacts faster to the most recent price action.

Example Comparing EMA with SMA:


Moving averages can be created from any number of trading periods however the most commonly used are the 200 day moving average and the 50 day moving average followed by the 15, 20, and 100 day moving averages.

Whether traders use the simple or exponential moving average normally depends on trading style and the financial instrument that one is trading. As the simple moving average is slower to react than the exponential moving average traders will often use the SMA for trading longer term moves and EMA’s for shorter term moves. Lastly traders will often look at how different financial instruments have reacted in the past using both types of moving averages and then pick the one that has best represented the types of moves they are trying to trade.

This completes our lesson for today. You should now have a good understanding of moving averages and the difference between a simple and an exponential moving average. In tomorrows lesson we will look at some different ways that traders use moving averages in their trading so we hope to see you in that lesson.


INTERESTING FOREX SITES
Free Forex Strategies & Systems
A collection of forex systems, indicators and strategies. 100% Free Download.
Download Free Top Rated Metatrader 4/5 Indicators & Forex Robots
Download top rated MT4/MT5 forex indicators and expert advisors.
100 Forex Trading Strategies
Each forex strategy includes the buy and sell rules, and a free download link!
Get Forex Analyzer PRO Forex System
Start trading with one of the best fx systems for profitable forex trading!

Back to complete forex video course

Find Us On Facebook

Best Forex Trading Software

Holo Eagle Forex System

Morpheus Forex trading System

Fibonacci Forex Scalper System


Home | Forex Newsletter | Site Map | Resourses | Forex Advertising | Forex Brokers | Forex Solo Ads | Contact Us
Any articles, systems, strategies, reviews, ratings, news, research, analyses, prices or other information contained on this website, by Aboutcurrency.com, its partners or contributors, is provided as general market commentary and does not constitute investment advice. Aboutcurrency.com will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.



Copyright © 2021 Aboutcurrency.com. All rights reserved.
By using this site, you agree to the Terms of Use and Privacy Policy .
Risk Disclosure: Trading forex on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.