Saturday, April 21, 2012

Moving Averages: EMA, SMA and WMA

Moving Averages (MAs) are among most commonly used indicators in Forex. They are easy to set and easy to interpret.
Speaking simple, moving averages simply measure the average move of the price during a given time period.
It smooths out the price data, allowing to see market trends and tendencies.

How to use Moving Averages

Moving Average is a trend indicator.

Besides its obvious simple function a Moving Average has much more to tell:

In Forex moving average is used to determine:
      1. Price direction - up, down or sideways.
      2. Price location - trading bias: above Moving average - buy, below Moving average - sell.
      3. Price momentum - the angle of the Moving average: rising angle - momentum holds, falling angle - momentum pauses or stops.
      4. Price support/resistance levels.

Types of Moving Averages

SMA - Simple Moving Average - shows the average price for a given period of time.
EMA - Exponential Moving average - gives priority to most recent data, thus reacts to price changes quicker than Simple Moving Average.

WMA - Weighted Moving Average - puts emphasis on most recent data an less - on older data.

Most common settings for Moving Averages in Forex

200 EMA and 200 SMA
100 SMA
50 SMA
34 SMA
20 EMA and 20 SMA
10 EMA and 10 SMA

Try and test and then choose your favorite set of Moving Averages.

Moving Average Video Presentation

Other versions of Moving Averages

Besides traditional EMA, SMA and WMA indicators, there are several other types of MAs available to Forex traders:

 Forex MT4 MA alertMA_Crossover_Signal.mq4
Forex MT4 MA alert
Forex MT4 MA alert
Forex MT4 MA alert



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