Moving Averages – Moving to Profit

Moving averages are one of many different tools you have at your disposal when you first start to learn how to trade in the Forex market. There are also charts, graphs, software, oscillators, and many other things you can use to help you learn how to decide when to buy and sell your foreign currencies. However, the moving average is the oldest tool used for predicting Forex markets, and also one of the most frequently used. That is because it is one of the most accurate and easy to learn tools of the Forex business.

Using moving averages is akin to using simple math. For example, to get the five day moving average of the Forex market, simply add up all of the closing prices for the past five days, and then divide them by five. You can calculate the moving average for any number of days you like in this way. When you get the average, it makes the price fluctuations inherent in the market look smoother and easier to read, and your charts then become clearer for your trading decisions. The best thing to remember about using this tool is that you get more accurate results with smaller windows of time. Therefore, your results from charting a three or five day average would be much more accurate than charting a thirty day average. This is because the shorter averages are influenced more by the daily shifts in price in the Forex market.

There are three different types of averages you can use in your calculations. There are simple averages, which give the same weight to all currency prices. There are triangular averages, which give more weight to prices in the middle of the time period you are calculating. Then, there are exponential (aka weighted) averages, which give more weight to the most recent prices. Each of these three methods of calculating averages will let you see what the current trend in currency prices is, and can be very effective tools in your trading activities.

Just remember, there is a learning curve when you are first starting Forex trading. You have to practice using moving averages in order to learn how to use them properly. You also have to understand that this method does not predict the price of a currency. Instead, it shows you the direction that the price of the currency is taking based on its past prices. Using this tool helps you confirm trends in the market now and identify coming trends. That way, you can make better trading decisions. Of course, you shouldn’t use this one technique on its own. As with other Forex analysis methods, this one is best used in conjunction with other methods, so you get a fuller picture of the market as a whole. Only then will you have all of the information you need to make an educated and hopefully profitable trade.

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