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Indicators: Moving Averages

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Tuesday, 18 November 2008 16:44

Moving Averages (

MA)are probably the most common indicator in use. The popularity of the indicator comes from its ease of use and understandability. By default, the MA gives a clear picture of where price has tended to be, and though it follows behind price action, you can often couple the MA with other indicators to trade successfully.

In this chart there are Simple Moving Average’s (SMA) attached with both a 3 and 8 period SMA. Often times for shorter term time frames, trades like to use numbers that are from to the Fibonacci series. These being 1,2,3,5,8,13,21,34 and 55 just to name a few.

For longer term charts, such as the daily chart below, numbers that correspond with the number of days in the trading week as well as the number of days in the trading month are common. However, there will always be the person that says “well if so and so is using a 5, 21 cross, I’ll beat them at their game and use a 3, 13”. In the end it really doesn’t matter. What will matter will be that you apply your rules consistently.

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*Risk Disclaimer: Trading foreign exchange 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.

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** “Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particularly trading program.

One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk. Variables such as the ability to adhere to a particular trading program in spite of trading losses as well as maintaining adequate liquidity are material points which can adversely affect actual real trading results.”