There are so many technical tools used in trading the Forex market and the moving average is one of such tools. It has become a must built-in for virtually every Forex robot and you can easily add it manually on your Forex Platform with a simple click of a mouse. But before you start using it, you need to be acquainted with it, how it works and how it can aid you in making money in Forex.
Every Forex investor has his own peculiar technique he uses for the interpretation of the market and fundamental data. Everyone wants something that can give them an edge and put them on the road to becoming millionaires. It does not depend on the ambiguity of the technique. Most times, the simplest strategies yield the highest results.
The most important question to be answered by every investor is when should I enter or exit a trade? It is a simple question with so many dynamic answers. One of the answers lies in trading with technical analysis, and most specifically moving averages. It is simple and an easy to use strategy.
This tool has gained popularity as a very simple way of finding the entry and exit points in a trade. This is because moving averages predict reliable and dependable trading signals. Moving average picks a specific period of time and takes the average of the closing prices. For instance, a nine day moving average takes the past nine days trading and gets the averages of the closing price. The following day, it adds the new closing price and lays off the oldest closing price. Making it simpler, moving averages makes price action smooth and gives you a clearer look at the happenings of the markets. Some popular moving averages are 5-day, 9-day, 20-day etc. Weekly or monthly moving averages can also be created. Short and long term trends can be easily observed because moving averages can be modified.
Moving averages first and foremost easily show the direction of movement of a market. On a second instance, moving averages also change direction which many traders take to be a signal. Lastly, when a short term MACD crosses over a long term MASD referred to as an MACD crossover, it shows another signal of change. These signals shows a market change in direction and this tells you, it is time to swing into action. For caution, many traders wait for a second signal to confirm the first one before taking action. This confirmation signal may take some time depending on the type of MACD you are using.
MACD gives you a reliable direction of the price movement in a market, though how you apply it is entirely your business. Finding what is best for you in a market of your choice requires a little hard work on your part, but the end can be rewarding.