# The best moving average forex

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Here are the strategy steps. Forex traders often use a short-term MA crossover of a long-term MA as the basis for a trading strategy. Play with different MA lengths or time frames to see which works best for you. Moving average envelopes are percentage-based envelopes set above and below a moving average. The type of moving average that is set as the basis for the envelopes does not matter, so forex traders can use either a simple, exponential or weighted MA.

Forex traders should test out different percentages, time intervals, and currency pairs to understand how they can best employ an envelope strategy. On the one-minute chart below, the MA length is 20 and the envelopes are 0. Settings, especially the percentage, may need to be changed from day to day depending on volatility.

Use settings that align the strategy below to the price action of the day. Ideally, trade only when there is a strong overall directional bias to the price. Then, most traders only trade in that direction. If the price is in an uptrend, consider buying once the price approaches the middle-band MA and then starts to rally off of it. In a strong downtrend, consider shorting when the price approaches the middle-band and then starts to drop away from it. Once a short is taken, place a stop-loss one pip above the recent swing high that just formed.

Once a long trade is taken, place a stop-loss one pip below the swing low that just formed. Consider exiting when the price reaches the lower band on a short trade or the upper band on a long trade. Alternatively, set a target that is at least two times the risk. For example, if risking five pips, set a target 10 pips away from the entry. The moving average ribbon can be used to create a basic forex trading strategy based on a slow transition of trend change.

It can be utilized with a trend change in either direction up or down. The creation of the moving average ribbon was founded on the belief that more is better when it comes to plotting moving averages on a chart. The ribbon is formed by a series of eight to 15 exponential moving averages EMAs , varying from very short-term to long-term averages, all plotted on the same chart. The resulting ribbon of averages is intended to provide an indication of both the trend direction and strength of the trend.

A steeper angle of the moving averages — and greater separation between them, causing the ribbon to fan out or widen — indicates a strong trend. Traditional buy or sell signals for the moving average ribbon are the same type of crossover signals used with other moving average strategies. Numerous crossovers are involved, so a trader must choose how many crossovers constitute a good trading signal. An alternate strategy can be used to provide low-risk trade entries with high-profit potential.

The strategy outlined below aims to catch a decisive market breakout in either direction, which often occurs after a market has traded in a tight and narrow range for an extended period of time. To use this strategy, consider the following steps:. Additionally, a nine-period EMA is plotted as an overlay on the histogram.

The histogram shows positive or negative readings in relation to a zero line. While most often used in forex trading as a momentum indicator, the MACD can also be used to indicate market direction and trend. There are various forex trading strategies that can be created using the MACD indicator. Here is an example. The first set has EMAs for the prior three, five, eight, 10, 12 and 15 trading days. Daryl Guppy, the Australian trader and inventor of the GMMA, believed that this first set highlights the sentiment and direction of short-term traders.

A second set is made up of EMAs for the prior 30, 35, 40, 45, 50 and 60 days; if adjustments need to be made to compensate for the nature of a particular currency pair, it is the long-term EMAs that are changed. This second set is supposed to show longer-term investor activity. If a short-term trend does not appear to be gaining any support from the longer-term averages, it may be a sign the longer-term trend is tiring out. Refer back the ribbon strategy above for a visual image. With the Guppy system, you could make the short-term moving averages all one color, and all the longer-term moving averages another color.

Watch the two sets for crossovers, like with the Ribbon. The signal indicator is period SMA. Stop loss is set below the minimum or above the maximum of the low candle. The profit can be locked using both take profit for example, its distance can be three times or more larger than the stop loss value or trailing stop.

The Sweet Chariot is quite an old strategy. Despite the fact that the traditional version does not use any oscillators, some traders can add other tools like ADX. The Chariot works really well with the trend. However, it is only logical to use a filter to minimise the risks of entering the flat market.

The EMA formula is rather complex, but, essentially, it means that a period EMA will give the most weight to the previous price values and the closing price of the 10th candle in reverse order will have almost no effect.

This MA has been developed to facilitate a smoother transition between the time frames. As a result, a line with the same period is smoother and closer to the chart, and its signals are less dependent on the large but outdated values. The only difference is that you will need to choose Exponential as the MA Method in the indicator window. After testing and revising, this modification can prove more profitable and effective than the traditional SMA system. It is a well-known combination of a trend indicator, which determines the trend direction, and the oscillator that helps in choosing the best moment to enter the market.

This strategy is suitable for any time frame, but we recommend it for short-term trading with MH1 charts. The system is quite simple and does not involve any strict requirements for exiting the market. The position can remain open until the reverse signal is received or you can set stop loss and take profit parameters. However, with WMA the weight is calculated in geometric and not arithmetic series.

For example, for a 5-period MA the weight of the last price value will be 5, the one before that will be 4 and so on until it reaches 1. The WMA is set in the same way as the previous ones. The only difference is that you will need to choose Linear Weighted as the MA Method in the indicator window. There are not that many trading strategies that use WMA. Usually, these are advanced strategies that have been developed by experimenting with and modifying more simple systems. A short position is open in the following cases:.

Conversely, a long position is open. This strategy was developed by traders from the West several years ago, and it was praised on the forums. Nevertheless, some specialists think that three WMAs 30, 60 and 90 periods are superfluous and could be removed without affecting the quality of the trading signals. Traders are free to decide on how to exit the market, however, stop loss is mandatory according to all the risk management rules.

This type of MA takes into account not only the price values within the set period but also some historical data. Although the priority is given to the weight of the more recent data, the historical values also affect the final results. Smoothed moving average is set in the same way as all the previous ones: traders choose the period, shift and style and then select Smoothed as the MA Method.

Smoothed Moving Average is the least popular MA type. It is rarely used in any trading strategies and mainly employed in complex automated trading systems or as part of custom indicators. Moving Average is a universal tool. It is suitable for any timeframes and assets. There are plenty of different trading strategies and approaches that use moving averages. Below are the most basic ones.

This is the most basic and universal approach. Since only one indicator is needed for the analysis, the position should be open when the price crosses the MA:. One MA can help catch a major trend, but before that, you might have to open several losing positions. That is why you have to set a stop loss for each position and allow the profit to grow, thus compensating for the previous losses.

This approach is similar to the previous one, but here the chart has two MAs with different time parameters. The signal will be the intersection of the two MAs:. As becomes clear from the example, the second MA allows you to filter out many false signals. Then again, there is another problem, which is connected with lagging. It often happens that the two MAs intersect only when half of the trend is already behind.

Together with MA, it acts as a filter. But which are the best moving averages to use in forex trading? That depends on whether you have a short-term horizon or a long-term horizon. For short-term trades the 5, 10, and 20 period moving averages are best, while longer-term trading makes best use of the 50, , and period moving averages.

Moving average crossover strategies have been found to be quite useful, but traders need to choose the proper moving averages for their trading strategy. A simple moving average typically lags price by too much to be useful in trading. Instead an exponential moving average should be used. Even better for moving average trading strategies is the use of the double exponential moving average DEMA.

Because the DEMA puts a far greater emphasis on the most recent prices its changes reflect price movements more rapidly. Many traders like to use a crossover strategy with DEMA tools, where a fast moving average such as the 10 period, crosses a slower moving average such as the 50 period.

The best moving average crossover combination depends on the time horizon of the trader, as well as the market being traded. A short time horizon calls for a moving average crossover strategy that uses shorter moving averages, such as the 5 period and 20 period. A longer time horizon might see a trader using a crossover strategy that combines the 50 period and period moving averages. Using both combinations together can yield the best strategy. The trader uses the long time horizon to determine the longer-term trend, and then only trades in that direction using signals generated by the shorter-term strategy.

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Download the image to all traffic destined to the. Fail-safe operability across then check the editing routine groups, be a cause. Up to licensed scan takes too.While this sounds simple, keep in mind that in Forex trading simple things work best. The formula to calculate a moving average is simplistic. However, this can differ, depending on the type of moving averages used. This is the simple moving average method, and it has slight differences in other types of moving averages.

To give a simple example, the exponential moving average EMA gives more importance to the current price levels, rather than the closing price of the candles that make the period. A moving average calculation is not mandatory on closing prices. It applies to various other prices, like opening ones, average ones during the day, and so on. The closing prices method is the most popular one and widely used. It should come as no surprise that they are the base for any moving average trading strategy.

I described the simple moving average SMA earlier. It averages the closing prices for the candles in the period considered. If you have ever wondered how to calculate moving average levels, divide the average closing price to the periods considered. As the name suggests, it is a simple approach to finding the state of the market, but a reliable one.

An exponential weighted moving average puts more emphasis on the current price, rather than simply averaging the closing prices. It reduces the lag by applying more weight to recent prices. The exponential moving average calculation results in the EMA being closer to the current price.

For this reason, it is more accurate than the SMA. The two moving averages are the base for many other technical indicators. Bollinger Bands is one of them. A volume weighted moving average VWMA is a simple moving average that considers the volume traded during that period. Is it more accurate than the exponential moving average formula? The volume reflects supply and demand imbalances.

The retail size of the Forex market is small. To put this into perspective, consider that Forex trading is a 5. The volume is critical in knowing when market participants, other than retail traders commercial banks, central banks, Forex brokers, liquidity providers, etc. It acts as an indicator that shows the real direction the market is heading. The volume is irrelevant in Forex trading. Any volume indicator offered by a Forex broker shows only the volume traded at that broker.

While it offers an educated guess, it is just a guess and not a certainty. The exponential moving average indicator values more. This is a relatively new concept in technical analysis. A displaced moving average indicator DMA is nothing but a different simple moving average example. Let me explain why. Traders found that multiple times prices slice through various SMAs as if there is no support or resistance. Then we see the price reacting from lower in a bullish trend or higher in a bearish trend levels.

They are using the same MA formula for the SMA, but shifting the outcome forward or backward in time. The result is fascinating. Important support and resistance areas result using the same moving average, meaning only that a small trick influences the outcome.

The blue line is the SMA 50 , or the day simple moving average. The red line is the DMA The displaced moving average formula is the same as the SMA one, but the outcome is shifted forward ten periods. In this case, ten periods represent ten days. The historical differences between the two averages may end up creating a powerful displaced moving average MT4 indicator. How much to shift backward or forward? What is the right period to use? Because of this, the results are random, and the exponential moving average formula prevails once again.

Moving averages have different meanings for different markets because not all markets are the same. Financial products move differently based on the factors that influence them. Consider the Forex and the stock market. They move in a correlated fashion only when shifts in the monetary policy affect them both. Golden and death crosses matter for the stock market, but not really for the Forex market.

A golden cross comes by plotting a smaller moving average like the day moving average, and a bigger one one hundred or day moving average. When the small moving average crosses the bigger one in a bullish direction, traders look to buy any dip. A death cross is the opposite of a golden cross.

It shows bearishness, as defined by the smaller moving average, crossing below the bigger one. Such a moving average crossover is a big deal for the stock market indices because the indices already show averaged data. It shows the changes in prices of the thirty companies that make the index. Not all companies have the same weight. Some weigh more than others, but the DJIA shows the median or the average result when plotting a value on a chart. As a result, a golden or death cross has more value for the DJIA or any other stock index than on any single financial product.

A cross between two moving averages represents the most popular moving average strategy. A Forex moving average crossover strategy signals future support and resistance levels because traders buy after a golden cross and sell after a death one.

Especially relevant is the period the moving average considers. As a rule of thumb, the bigger the period, the stronger the support and resistance level is. Hence, many traders sell a spike into SMA for the simple reason that rejection might appear. In this case traders expect price hesitation. Many traders say that the best moving average for day trading is the EMA.

It eliminates most of the lag and is more accurate. Hence, it is the favored choice among traders. The setup is simple: plot multiple moving averages on the same chart to spot an ongoing trend. A perfect order for the moving averages implies a strong trend. If it follows a golden cross the day moving average crossing above the day moving one , the trend is bullish, and traders will look to buy dips.

Lagging moving averages allow traders to buy a dip in a support area, or to sell a spike in a resistance one. The smaller the lag, the more powerful the setup. Hence, traders prefer exponential moving averages as they reduce the lag. All eyes were on the golden cross and the perfect order to be in place.

This example contains four exponential moving averages: EMA , , 50 , and It goes without saying that the closest one to the price is the lowest MA. Therefore, traders look to buy dips. Any dip into the bigger EMAs show signals to go long. Also, the bigger the EMA, the stronger the support level. This way the volume traded may be different; bigger volumes being favored when the price is reaching the higher moving averages. It is quite easy to add this indicator in the MetaTrader 4 chart.

You can also choose the timeframes in the Parameters window. The majority of strategies use Simple Moving Average. As a rule, it is set to default unless otherwise required by the trading system. Simple Moving Average is represented as a line and is calculated based on the arithmetic means of the previous price values. The bigger the period the number of values taken into account , the smoother and more remote from the price chart, the moving average will be.

For example, if daily closing prices on a 5-day chart were at 1. To obtain the next 5-day SMA value, we need to drop 1. After that, you will see a window where you will need to select Simple in the MA Method. Other settings depend on the trading strategy conditions.

SMA is the most popular MA type, and it lies at the core of many strategies. Despite the fact that SMA is rarely used without additional indicators, there are some strategies that employ only SMA. The Sweet Chariot strategy is designed for medium- and short-term trading, the optimum timeframes are D1 or W1. Trading with 1-hour or 4-hour charts is also possible, however, the bigger the time frames, the more precise the trend will be. And trading with the trend is the key to success with this strategy.

The signal indicator is period SMA. Stop loss is set below the minimum or above the maximum of the low candle. The profit can be locked using both take profit for example, its distance can be three times or more larger than the stop loss value or trailing stop. The Sweet Chariot is quite an old strategy. Despite the fact that the traditional version does not use any oscillators, some traders can add other tools like ADX.

The Chariot works really well with the trend. However, it is only logical to use a filter to minimise the risks of entering the flat market. The EMA formula is rather complex, but, essentially, it means that a period EMA will give the most weight to the previous price values and the closing price of the 10th candle in reverse order will have almost no effect.

This MA has been developed to facilitate a smoother transition between the time frames. As a result, a line with the same period is smoother and closer to the chart, and its signals are less dependent on the large but outdated values. The only difference is that you will need to choose Exponential as the MA Method in the indicator window.

After testing and revising, this modification can prove more profitable and effective than the traditional SMA system. It is a well-known combination of a trend indicator, which determines the trend direction, and the oscillator that helps in choosing the best moment to enter the market.

This strategy is suitable for any time frame, but we recommend it for short-term trading with MH1 charts. The system is quite simple and does not involve any strict requirements for exiting the market. The position can remain open until the reverse signal is received or you can set stop loss and take profit parameters. However, with WMA the weight is calculated in geometric and not arithmetic series. For example, for a 5-period MA the weight of the last price value will be 5, the one before that will be 4 and so on until it reaches 1.

The WMA is set in the same way as the previous ones. The only difference is that you will need to choose Linear Weighted as the MA Method in the indicator window. There are not that many trading strategies that use WMA. Usually, these are advanced strategies that have been developed by experimenting with and modifying more simple systems. A short position is open in the following cases:. Conversely, a long position is open. This strategy was developed by traders from the West several years ago, and it was praised on the forums.

Nevertheless, some specialists think that three WMAs 30, 60 and 90 periods are superfluous and could be removed without affecting the quality of the trading signals. Traders are free to decide on how to exit the market, however, stop loss is mandatory according to all the risk management rules.

This type of MA takes into account not only the price values within the set period but also some historical data. Although the priority is given to the weight of the more recent data, the historical values also affect the final results. Smoothed moving average is set in the same way as all the previous ones: traders choose the period, shift and style and then select Smoothed as the MA Method.

Smoothed Moving Average is the least popular MA type. It is rarely used in any trading strategies and mainly employed in complex automated trading systems or as part of custom indicators. Moving Average is a universal tool. It is suitable for any timeframes and assets. There are plenty of different trading strategies and approaches that use moving averages. Below are the most basic ones. This is the most basic and universal approach.

Since only one indicator is needed for the analysis, the position should be open when the price crosses the MA:. One MA can help catch a major trend, but before that, you might have to open several losing positions. That is why you have to set a stop loss for each position and allow the profit to grow, thus compensating for the previous losses. This approach is similar to the previous one, but here the chart has two MAs with different time parameters.

The signal will be the intersection of the two MAs:. As becomes clear from the example, the second MA allows you to filter out many false signals. Then again, there is another problem, which is connected with lagging. It often happens that the two MAs intersect only when half of the trend is already behind.