How do I use moving average to create a forex trading strategy?

But that is also why they are closely watched as areas of interest. I use the period moving average to gauge market direction, but not as a trigger for buying or selling. Below are the most common SMAs used in the market:. This example contains four exponential moving averages: What will the period SMA show? Learn this simple momentum strategy and its profit-protecting exit rules.

A simple moving average (SMA) is the simplest type of moving average in forex analysis. Basically, a simple moving average is calculated by adding up the last “X” period’s closing prices and then dividing that number by X.

What is 'Simple Moving Average - SMA'

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Moving Average Trading Strategy

If a shorter-term simple moving average is above a longer-term average, an uptrend is expected. On the other hand, a long-term average above a shorter-term average signals a downward movement in the trend. Popular Trading Patterns. Two popular trading patterns that use simple moving averages include the death cross and a golden cross. 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. This is the second article in our Simple Moving Average series. Find out how to use SMA in forex trading, how it is calculated, and how it looks on a chart.