By Daniel Shaw
When trading currencies online we often use different methods in order to analyze the charts and have the highest probability to make profits. Forex trading is a very big industry where traders have many different trading platforms and brokers on their disposal. There are many Forex brokers that use a MetaTrader platform. MT4 is popular in the entire world by a high variety of trading instruments and indicators it has to offer.
As you know, the moving average or as it is also called the dynamic average is one of the most widely used indicators in technical analysis. Unfortunately it is not available on every trading platform. MetaTrader is one of the most popular platforms where you can find the Moving Average indicator. Like any trend-following indicator, moving average works well during the development of a new strong trend, but its effectiveness decreases when trading currencies takes place within the price band. For this reason, the moving average is better to use for identification and tracking trends, but not for their predictions. That’s why as part of the technical analysis the moving average indicator is useful after the trend has started in order to watch its development and find the right point of entering and leaving the market.
Thus, the main usage for the moving average in technical analysis is to identify and confirm the trend. There are certain basic techniques that a trader can use to determine the trends by movements of a certain currency pair. The simplest method of analysis is a simple observation of the direction of the moving average indicator. This allows you to define strong increasing or decreasing trends. Another way is watching the positions of the current price and the indicator of the moving average. If the price is above the moving average, then the currency is in increasing trend, the opposite situation indicates the presence of a downward trend.
Moving Average may also be used as an indicator of the trend’s end and the signal for closing the trading positions. If the indicator line of the moving average went along the trend and on the certain period the prices close level crossed the line of the moving average indicator, it is a signal for the trend’s end or change of its direction. This is the moment when staying in the market might be very risky and closing the trading position is the better choice. As already mentioned above, for a successful usage of the moving average there must be a strong (long) increasing or decreasing trend. When the currency rates stay within the price band, the moving average, as an indicator that reacts to changes with some delay, does not provide useful information to a Singapore trader.
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