Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

tmbaru

Forex Trading With Moving Averages

Recommended Posts

As a trader continues to participate in the Forex market, he masters the art of employing various tools in his trading thus becoming a better trader. As a newbie, you should have genuine interest to learn the tools that you can employ to determine the entry and exit of individual trades. Some of the tools that will be beneficial to you are Moving Averages technical indicators. These are some of the popular indicators used by technical analysts in the Forex market to find trends in the market.

 

Finding the Trend

 

A majority of trades takes place on a short basis as compared to long term. Short term trading entails limiting the time frame that your capital investment is at risk. As a trader, you have to make a decision whether you want to be bearish or bullish on a given currency pair before entering a trade. To achieve this, you need a longer term snapshot to provide for you a useful road map to get to your destination. While you can make money through short term trading, it is easier to make more substantial amount of cash by trading in the direction of a major trend than trading against it. Therefore, before you consider a trade using any of the currency pair; it is of paramount importance to objectively identify the prevailing major trend in the market.

After establishing the current major trend, you can then fine tune your entries and exits. The aim objective of doing this is to focus on short trades when the major trend is bearish and on long trades when the major trend is bullish.

 

Trend Filtering

 

One of the simplest and easiest strategies for trend filtering is applying moving average to a data set. Moving averages help a Forex trader to quickly visualize the current trend by observing whether the price action is below or above the moving average. If you use moving averages appropriately they will help you to focus on the best opportunities in the market for optimal benefits.

 

Moving average as a trend following tool is effective in generating buy and sell signals. Moving average indicator smooths out volatility of price action, this enables Forex traders to clearly establish the direction of the trend in the market. By comparing moving averages indicator with price action, a trader can establish the trend of the market as well as predict where the currency price is likely to head to next.

In an upward trend, the moving averages move in an upward direction while in a downward trend moving average tends to move in a general downward direction. When the market is moving in an upward trend, the price of the currencies is usually above the moving average. It is worth mentioning that when the price is above the moving average, then the trend will remain bullish. When the price closes below the moving average it indicates that the support that was being offered by the moving average has been broken and the upward trend has ended. On the hindsight, in a downward trend when the price closes above the moving average it shows that the support that was being offered by the technical indicator has been broken and the downward trend has come to a halt.

 

Conclusion

One of the ways to trade successfully in the Forex market is to develop the ability to spot opportunities and establishing how to take advantage of those opportunities for your advantage. Trading in the direction of the major trend in the market is one of the best ways of improving your odds of making good money in the financial market. Moving averages is just one of trend identification tools.

5aa711e455ad6_movingaveragesdifferent-degreetrends.gif.cef917cce9d3f89fd5bdd2e7c06b828b.gif

Share this post


Link to post
Share on other sites

Just a few questions.

 

1) Simple moving average or exponential ?

 

2) Should i pay any attention to the range/volatility charictaristics of any particular instrument or does one size fit all?

 

in that case...

 

3) Should i stick other lagging indicators such as oscillators on my chart to help confuse me or is less...more?

 

4) Is every price on the chart important or are some prices more important than others? And if so how does a moving average quantify the difference? And if it could,does that mean i should change a) the type of MA? b) the time period? c) the point at which i run the moving average from? d) something else?

 

 

5) Am i right in thinking a MA is measuring the average closing price? If so,does that mean all the h/l's aren't worth bothering with..even though those are the very points at which price turns?

 

6) What about when price isn't trending? Just remind me,on average how long does price spend trending compared to consolidating?

 

7) Would it be possible to recognize the difference between trend and consolidation without a MA or is that just impossible?

 

8) If indicators,in this case MA's represent an" edge" then why is this "edge" freely available everywhere?

 

9) Is it true that the lower the timeframe you use MA's the more false "signals" you'll get and the longer the timeframe the more lagging those "signals" will be? When faced with this kind of problem is it best to just keep adding other things to your chart in an attempt to solve it and is that the reason why you really need quants in this biz?

 

10) Ultimately,do you think that the thing that works best in this business is cheating so everything else is just a compromise based on the fact that you can't personally cheat?

 

11) If you could cheat would you still bother with MA's? Does that mean Goldman Sachs uses them or not?

Share this post


Link to post
Share on other sites

 

5) Am i right in thinking a MA is measuring the average closing price? If so,does that mean all the h/l's aren't worth bothering with..even though those are the very points at which price turns?

 

 

The highs and lows are worth bothering with if you are willing/able to trade at those prices. If you're trading end-of-day only, then their value immediately becomes less obvious, as you can only enter or exit positions at the close.

 

However . . . MAs are calculated entirely with historical prices. As you can't trade at any historical price, then the closing prices are no more tradeable than the highs and lows . . .

 

So, are we to conclude that the MA is only useful in so much as it can provide information about likely future prices?

 

If that's the case then you need to know whether the closing prices provide greater disclosure about the future closing prices than the highs/lows.

 

It all gets complicated very quickly, and heaven help the unsuspecting fool who opens the pandora's box of the 9 other questions!

 

BlueHorseshoe

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • Date : 12th December 2019. Lagarde prepares ECB debut – 12th December 2019.   Policy unchanged Projections unlikely to change much Clues about review sought Style in focus Presiding over her first presser of the European Central Bank today, Lagarde is expected to confirm once again the current policy setting, giving time to ECB to focus on the planned review of its overall policy framework.Final Eurozone GDP and PMI readings broadly supported this neutral picture, while the confidence that a deep recession can be avoided is strengthening (Figure 1) despite the fact that German manufacturing and production numbers still look weak. The exports and the overall trade are actually holding up much better than expected, which together with still strong labour markets is underpinning hopes the net exports and consumption will continue to support growth not just in Germany.Figure 1 : December German ZEW investor confidence outcome, end the year firmly in positive territory at the highest level since February 2018.As there is nothing in the data really to challenge the ECB’s overall policy stance, the focus firstly turns into the tone and presentation style that President Lagarde will have. The “risk” is that the presser will be equally uneventful as her testimony before the European Parliament. Lagarde’s team building exercise seems to have worked and at least in public there has been a pretty consistent message since she took over, which is very likely to be confirmed today. Additionally it will be interesting to see whether she will back fully Draghi’s package.Citi Bank: All key interest rates will likely be left unchanged, and the forward guidance reaffirmed. The main interest at this meeting will be the new Eurosystem staff projections, extended to 2022, to gauge whether the September package will be sufficient to bring inflation back into line with the ECB’s target over the forecast horizon. If not, investors’ attention will quickly turn to the ECB’s toolbox and what instruments the Governing Council would be willing to use and when, in order to defend its credibility in the absence of large fiscal support. The upcoming strategic review of monetary policy will also likely be the focus of many questions.Hence as reported by Citi, other than Lagarde’s style, ECB projections could also monopolize the attention. Even though, the ECB remains ready to act again and tweak all its measures if necessary, it has already done a lot and now needs to keep an eye on the side effects of the very expansionary monetary policy, while politicians need to do their bit to support the economy.The central bank won’t be reducing the degree of stimulus any time soon with many analysts supporting that this will continue until mid-2020 unless there is a major change in circumstance.Central bankers will be conducting a comprehensive review of the policy framework, however, with a special focus on the inflation target. A more symmetric definition, which stresses that the ECB can see through lengthy inflation overshoots as well as periods of too low headline rates is likely to come in the first quarter of next year. The inclusion of owner-occupied housing costs into the HICP number also remains a challenge especially as house prices are rising rapidly in some centres, also thanks to the low interest rate environment.Bund yields have nudged higher over the past week, but the German 10-year so far failed to move lastingly above -0.3%. Uncertainty on trade and Brexit are keeping a lid on yields, although there is the risk that if things go the way markets want and a phase one trade deal is confirmed and in the UK PM Johnson gets his majority, there could be a sharp rise in yields, if markets price out further easing and start to look ahead to central banks removing some of the stimulus.However this is far away for now, while central bankers are not looking eager to add further easing.Always trade with strict risk management. Your capital is the single most important aspect of your trading business.Please note that times displayed based on local time zone and are from time of writing this report.Click HERE to access the full HotForex Economic calendar.Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!Click HERE to READ more Market news. Andria Pichidi Market Analyst HotForex Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • USDJPY Remains Biased To The Downside   USDJPY faces further price weakness despite its price hesitation on Tuesday. On the upside, resistance comes in at 109.00 level. Above this level will turn attention to the 109.50 level. Further out, we expect a possible move towards the 110.00 level on a break of that area, A cut through here will open the door for more gain towards the 110.50. On the downside, support lies at the 108.00 level where a break will target the 107.50 level. Below that level will turn focus to the 107.00 level and then lower towards the 106.50 level. On the whole, USDJPY faces further downside threats.        
    • Sterling Advances Barely Hours To UK Elections As Latest Poll Predicts Conservatives Win In just two days from now, a major event that will set the trend for the currency market for the year 2020, the UK elections will be held. In the face of a Brexit extension, UK prime minister had pushed for an earlier election in the hopes of having a majority conservatives win in the parliament which will make the Brexit deal pass through easily. As the clock ticks, with barely less than 48 hours to this epochal event, the newest poll by Survation conducted for ITV’s good morning Britain show predicts a Boris Johnson win by 14 pts. ahead of Jeremy Corbyn‘s Labour party. The Brexit deal seemed to give the conservatives an edge as it accounted for 32% of the vote decision while NHS gave Labour party a slight edge. On the overall, a majority vote of 42% was predicted for the conservatives while Labour had 28%. Market Reaction as the Clock Ticks Optimism looms in the market as the prediction of a conservatives win will ease Britain’s exit from Europe by January 31 deadline. The EUR/GBP pair continued to fall till the early hours of today breaking the 0.8411 trend line targeting the 0.8149 resistance level. GBP/USD pair rebounded to consolidate briefly targeting 1.3381 resistance levels. Technical analysis within a 4-hour MACD shows that both pairs may likely touch down. CAD edged slightly higher advanced by USMCA news but yet to consolidate gains. The USD against a basket of five major currencies held steady awaiting FOMC’s minutes due out tomorrow. Against a basket of currencies, NZD’s dominance is the highest. Sterling also gained momentum firmed up by approaching UK elections. The safe-haven, the Japanese yen, and Swiss franc remain pressured as major events that will shape the market for 2020 are been anticipated. On the Asia side, significant market activity wasn’t recorded as most currency pairs held steady within a day’s range. In the Asian stock market, not so much activity was recorded being weakened by recently released Chinese PMI numbers. Most of the indexes closed a little lower while US stocks rose swiftly after Friday’s release of US non-farm payroll reports. The outcome of the December 15 deadline set by the US for the signing of a preliminary trade pact will determine the week’s direction and even further into the year 2020. Also due out later in the week is UK GDP figures and ZEW released out of Germany.
    • Date : 11th December 2019. FOMC Preview – 11th December 2019. FOMC Preview No policy changes or surprises are expected with today’s announcement (19:00 GMT) and Chair Powell’s press conference 30 minutes later. It will be interesting to see if, as expected, the voting is unanimous this time round. The FOMC members have expressed significant differences of opinion during 2019 as three rate cuts were implemented.  The apparent paradox of low unemployment and low inflation, the new “norm”. The two-digit unemployment rate (U-3) in November edged down to 3.53% from 3.56% in October, and a 3.52% cycle-low in September, all below the 3.58% prior cycle-low in April and a 4.00% rate at the beginning of the year. Current readings remain much lower than the 4.2% long-run unemployment rate projection noted in the September SEP, it is expected that this estimate will be trimmed today. Headline CPI rose 0.4% in October while the core index rose by 0.2%, for respective y/y gains of 1.8% and 2.3%, versus September figures of 1.7% and 2.4%. Today the November headline is expected to fall again to 0.2% and the core remains flat at 0.2% too. The Fed’s favoured inflation gauge, the PCE chain price measure, rose 1.3% y/y in October and expectations are for an uptick to 1.4% in November. The core PCE chain price measure rose 1.6% y/y in November, versus 1.7% in September, and expectations are for the pace to hold at 1.6% in November. The FOMC’s latest median estimates for 2019 inflation are 1.5% for the headline and 1.8% for the core. Hence, the focus will be on the Fed’s new quarterly forecasts, with expectations raised and likely to be mostly bullish results with a bump up in the median growth projection and a drop in the median dot to reflect a steady stance through 2020. However, the individual dots are likely to show both, forecasts for cuts and hikes. Chair Powell is expected to reiterate the US economy and policy are in a “good place,” (a phrase he has used a number of times lately) and could sound a little more upbeat after the strong jobs report. But, he will continue to warn of downside risks. The FOMC isn’t likely to announce any new measures on reserve management operations (QE?) or a repo facility. All steady into 2020 and beyond. USDIndex remains biased to the down side but has support around 97.40 and the 200-day moving average. A breach of this key support zone brings in 97.00 and the October low of 96.85. A break over 97.80 (the confluence of the 20 and 50-day moving averages) and 98.00 would be required before a re-test of the recent high at 98.50 could be considered. Always trade with strict risk management. Your capital is the single most important aspect of your trading business. Please note that times displayed based on local time zone and are from time of writing this report. Click HERE to access the full HotForex Economic calendar. Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE! Click HERE to READ more Market news. Stuart Cowell Head Market Analyst HotForex Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.