Ihab Salloum[ad_1]
Moving Averages (MA) are considered reliable indicators for the identification of medium and long term trends. Traders mainly use three strategies relating to the indicator that include;
· Single MA
· Double MA
· Triple MA
Let’s discuss each one by one.
Single MA
In this strategy traders use single MA which acts as the support and resistance level. Normally 50 MA, 100 MA or 200 MA are used for this purpose. In a bearish market, the MA acts as the critical support level while in a bullish market the same MA will act as the critical resistance level. 200 Daily Moving Average (DMA) is considered as a long term pivot zone among the traders.
Double MA
In this strategy two indicators are used to generate signals for potential buying or selling opportunities. Traders make use of double moving average or two moving averages to find the crossover.
For this purpose, usually a faster indicator (50 MA) is used in conjunction with the slower indicator (200 MA). A long position should be opened at a point when the 50 MA crosses and comes above the 200 MA. Conversely, a short position is preferred when 50 MA crosses and comes below the 200 MA.
Triple MA
In order to generate signals on the basis of 3 moving indicators, the traders need to Insert 10, 20, and 30 or 7, 14, and 21 day Simple indicators. Every time when the fastest indicator (7 or 10 SMA) crosses medium indicator (14 or 20), it is considered as an alert signal for possible trend change, but at this point traders usually don’t take any action.
A bullish signal is generated every time when the fastest MA i.e. 7 or 10 SMA crosses to come above the slowest MA i.e. 21 or 30 SMA and traders tend to open long (buy) positions at this point. A bearish signal is generated every time when the fastest MA i.e. 7 or 10 crosses to come below the slowest MA i.e. 21 or 30 SMA and traders tend to open short (sell) positions at this point.
Conclusion
MAs are considered fast and reliable indicators for the change in trend however they must be used in conjunction with the other technical tools such as trend-lines, fibo levels, CCI or RSI. Moreover, fundamental events as well as the overall macro-economic scenario also need to be monitored carefully to make sure consistent earning out of forex trading.
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