) is one of the most popular, most followed and old trading indicators. It is used extensively by all kind of traders including forex traders and stock market traders
. MA is a chart smoothing indicator
showing the average value of the price changes for a currency pair or security for a period of time. Generally a MA is named after the number of period of time it represents. Eg: 50 MA shows the average values of 50 periods/days.
Traditionally there are two types of moving averages; and are usually used on same chart simultaneously - they are short-term
moving averages. As indicated by name a short-term MA shows averages of a shorter period of time like 10 or 15 days and long-term MA shows averages of a longer period of time like 50 or 60 days.
Analysis of moving averages are very easy and straight-forward, when short-term average crosses above
long-term one, then the upward momentum of currency pair or security is confirmed and when it crosses below
the long-term MA, downward momentum is confirmed. Moving averages are also used in forex trading
to find out long and short term support and resistance levels
where the number of times the price hit a moving average increases the validity of support or resistance level.
Moving average is a very good indicator to analyze existing and past market movements, but it does not predict anything about the future. It is good tool for confirming trends and trend changes and for placing stop-losses and placing entries but is a poor tool for setting targets, exit points or profit levels. There are many variations of moving averages available - simple MA, Exponential MA and Weighted MA.