Ihab Salloum[ad_1]
If you are trying to generate good profits from trading consistently then it will be easier for you if you can follow the current market trend, one simple tool you can use are moving averages.
Moving average (MA) is a lagging indicator or commonly referred to as a trend following indicator which has three types: simple moving average (SMA), exponential moving average (EMA) and weighted moving average (WMA).
MA is a statistical formula that calculates the average price movements within a given period. Usually, the used price is the closing price that occurred in a certain session in a market. But there are some technicians who perform some modifications by using the opening price, highest price, lowest price or mid price as a variable in the calculation.
Calculation formula used to generate this indicator’s value is very simple. For example 5-day SMA, the SMA value is generated from the sum of the most recent closing price in 5 days and then divided by 5. Suppose the sum of the last 5 days closing price is 100 then the current 5-day SMA is 20. You’re lucky because now you don’t have to perform manual calculation to determine the MA of a certain period in a market. Everything is available on your chart. All you have to do now is study and use it with high discipline to help you achieving good profit consistently.
As a trend following indicator, obviously moving averages work best when market is trending. We will obtain buy or sell signal that has a very good probability of profit. When price is above MA then it is a buy signal and such condition indicates the trend will likely move upwards, on the contrary when price moves below MA such situation indicates the trend begins to decline and we should take a sell position.
There are several other techniques widely used by traders in their efforts to optimize the power of moving averages. Some technicians use different moving averages periods, some prefer to use shorter time periods such as 5, 10 and 20 while some are happy to use 50, 100 and 200.
Another widely used technique is applying two or more moving averages with different periods, say three SMA with period of 4, 9 and 18. If the 4-day and 9-day SMA cross over the 18-day SMA from below then such condition indicates the market trend will soon become bullish and as long as the shorter MA remains above longer period MA, the bullish trend will likely to continue.
All of these techniques and modifications depend on a trader interests and style of trading. As this is your trading then you should try to find a good technique that you feel comfortable with. Explore the moving averages and make good profit from it.
[ad_2]
