Search:

An article on Currency Trading and related topics

For additional information and special deals related to some of the items on this article, place your cursor over the double-underlined links. All information supplied by Kontera.com

An Introduction To Moving Averages

By: Jon Provencher

Moving Averages are one of the most basic and frequently used technical analysis tools. Moving averages are used by traders to confirm trends, find new trends and find trends about to reverse.

There are three types of moving averages: Simple, Weighted and Exponential.

In a simple moving average each price point in the specified period is given equal weight. The user needs to define whether the high, low or close is used, these price points are then added together and averaged. As each price point is included in the equation a line is formed and the oldest price point in the sample is dropped.

A weighted moving average gives more weight to the latest data. Each price point is multiplied by a weighting factor which will be modified each day. These figures are then combined and divided by the sum of the weighting factors. The weighted moving average provides smoothing to a curve of prices and is more responsive to the latest price movements.

An exponential moving average is another method of giving more weight to the latest data. A percentage of the current price is multiplied by the preceding period's average price.

Fortunately, most charting packages do all the calculations for you.

Traders seek to find the optimum moving average for a particular currency pair. This process involves testing the various types of moving averages and varying the time periods used to find a fit for the price data.

Many traders use more than one different moving averages on each price chart. For example a trader might use a 5 period, 13 period and 60 period moving average on the same price chart. The trader will try to identify how the moving averages can be used together to give confirmation for a trade.

Larger moving averages (eg. the 60 period) can help the trader to confirm the long term trend, but lag behind the price and are slow to respond to a changing trend. Smaller moving averages (eg. the 5 period) can help to find short term trends and reversals, they follow the price trend quite closely but give less of a smoothing appearance than a longer period moving average.

Traders often seek for a moving average that has been a line of support or resistance in the past. This line is then used to enter stops, profit targets and try to identify trend reversal opportunities. Many traders also try to identify the moving averages to cross over to find a trade opportunity.

Like any other technical indicator, moving averages work with a delay. The moving average line is only a forecast of what could happen in the future, not a guarantee of what will happen.

There are more than one other more complex moving averages you might come across.
- Double Exponential Moving Average (DEMA)
- Triple Exponential Moving Average (TEMA)
- Forecast Moving Average
- Least Squares Moving Average
- Modified Moving Average
- Time Series Moving Average
- Triangular Moving Average
- Zero Lag Exponential Moving Average

The easiest way to learn how these different moving averages respond to price data is to open up a currency (or stock) trading demo account and test them out on a chart.

Article Source: http://ezine-articles-planet.com

For more information on foreign currency trading and to improve your Forex trading skills, visit www.iblogforex.com, an excellent resource for Forex Training.

Please Rate this Article

Not yet Rated

Click the XML Icon Above to Receive Currency Trading Articles Via RSS!

Additional Articles From - Home | Finance | Currency Trading

Authors, Sign Up for a free account or learn more.

	Print This Article
	Post Comment
	Add To Favorites
	Email to Friends
	Ezine Ready

Writers/Authors Submission Guidelines
Member Login
Submit Articles
Most Popular Articles

Publishers Article RSS Feeds
Terms of Service

Free Affiliate Training

Share This Page:

Site Information Link to Us
About Us
Site Blog
Contact Us
Privacy Policy
Multi Site Article Search
Links Directory

AdSense Secrets v4.0

First Universal Platnum $7500 Guaranteed

Is This Site Useful?
If you found this site useful, please consider buy the webmaster coffee and get a free link back to your site!

Thanks for your support!

Please Rate and Vote For Us: