Forex trading is not a money game. Therefore, a forex trader needs an appropriate trading strategy to maximize profits. There are various types of trading strategy in the forex market. In addition, the forex brokers offer a number of facilities and tools to help the traders make informed decision in the trading activities. They include indicators and charts, which the traders can use to analyze the trends. One of them is forex moving average indicator. It is actually a technical indicator, which displays moving averages.
Forex Moving Average Indicator: Use and Types
As mentioned above, forex traders need a trading strategy to maximize the chances for earning profits. They can use moving averages (MA). Moving averages are basically trend indicators, which display support level and resistance level. The indicators help the traders to filter out the short-term price fluctuations and see the price trends based upon the past prices.
The MAs are categorized into two:
Simple moving average; the forex moving average indicators presents the average prices over certain periods of time
Exponential moving average; this indicator focuses more on recent prices. It enables the traders to respond quickly to the recent prices
How Forex Moving Average Indicator Works
How forex traders use MAs depends upon their objective in trading. They can use either short-term or long-term MAs. The short-term MAs are used for short-term trading, while the long-term MAs are for long-term trading. Most popular short-term MAs are 50 days, while long-term MAs usually use a 200-day period.
The longer the time period used to for the moving average indicators, the greater the lag degree is. For instance, a 200 MA moving indicator contains prices for 200 days. Of course, the indicator presents the price trends better compared to a 20-day MA.
The forex moving average indicator is also a useful trading signal. For instance, a rising MA indicates an uptrend, which favors the traders. On the other hand, decreasing MA indicates a downtrend. So, make sure to identify your objective first before deciding the type of moving indicators to use.