Indicator Moving Average
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  1. #1
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    Indicator Moving Average

    Hi everybody, welcome to the thread created by me on Moving Averages Indicator. I would like to thank you all in advance for spending time in reading this post. I am writing about the indicator which i am using day in and day out in my routine trading life. Hence, all the critics and comments are accepted, indeed it is highly helpful for me to modify my trading method if there are any changes to be made. I have made gains and losses because of moving averages as there is nothing "perfect" in the forex market and the forex trading business.

    Below is the complete detail of moving averages, its use in the trading business.

    •Description of indicator;

    Moving averages smooth the price data to form a trend following indicator. They do not predict price direction, but rather define the current direction with a lag. Moving averages lag because they are based on past prices. Despite this lag, moving averages help smooth price action and filter out the noise. The two most popular types of moving averages are the Simple Moving Average (SMA) and the Exponential Moving Average (EMA).
    These moving averages can be used to identify the direction of the trend or define potential support and resistance levels.

    Exponential moving averages have less lag and are therefore more sensitive to recent prices - and recent price changes.
    Exponential moving averages will turn before simple moving averages. For this fact i am focusing more on EMA in my trading analysis.

    •Features and principles of indicator;

    The moving average indicator can be modified according to the type of trading method and trader type.
    For short term traders - moving averages from 5-20 periods are best suited.
    For medium-term traders - moving averages might extend from 20-60 periods.
    For Long-term traders - moving averages with 100 or more periods are preferred.

    I use Two moving averages for generating crossover signals and that is EMA 18, EMA 30.

    •Settings of indicator;

    The set up of the moving average indicator is very easy as they are easily available, infact they are one of the default indicators available in metatrader trading terminal. I have updated the set ups with two options, one where in there is direct click set up and in the second image there is direction from the insert tab in the meta trader trading terminal.

    Direct Set up.jpg

    In the default meta trader trading terminal set up, on left side of the monitor there is account information tab and below the same we can find indicators tab. On clicking the list there are number of default indicators available. Move to Alphabet “M” – Where in you can find Moving averages, or sometimes it can be under Alphabet “C” – Custom Moving Averages. Click on this and then the set up box opens, under the periods tab there are options for moving average selection with two options – Simple or Exponential, select Exponential and the periods can be changed by manual set up as 18 with one color and EMA 30 with another color for better distinction.

    Insert Set up.jpg

    •Supporting screenshots;

    I have attached the images of GBP/JPY, EUR/USD currency pairs which have given perfect sell and buy signal. I prefer to use M15 timeframe for obtaining the trading signal and there should be a clear close of the candle above the moving averages 18, 30 crossover. Its always best to rack up the pips because of which am happy with profits in the range of 30-50 pips, anything above that is certainly a feast.

    gbpjpy.jpg EURUSD.jpg



    ENTRY SIGNAL : Buy or Sell signal is generated from the crossover when 18 EMA crosses 30 EMA. The successful close of the two - three candles is always best for considering to enter into the trade.
    Buy when 18 EMA crosses 30 EMA from below.

    Sell When 18 EMA crosses 30 EMA from above.

    EXIT SIGNAL :Exit the trade when there is close of the candle above the 30 EMA.

    •My personal opinion and recommendations concerning moving averages indicator;

    The advantages of using moving averages need to be weighed against the disadvantages.
    Moving averages are trend following, or lagging, indicators that will always be a step behind. This is not necessarily a bad thing though.
    After all, the trend is your friend and it is best to trade in the direction of the trend.
    Moving averages insure that a trader is in line with the current trend.Being along with the current market trend is critical for traders success in this highly profitable forex trading business.

    Advantages
    Following are the advantages of using Moving Average for making the market analysis
    * Moving Average indicator is the trend following indicator which helps us to stay along the current market trend.
    * By using two different moving averages, it gives us clear view regarding the current market scenario to obtain the entry signal.
    * Dynamic support and resistance can be spotted with the help of two different moving averages.
    * This is one of the Consistent profit making strategy, provided the traders follow strict money and risk management in their each and every trade and stick to the trading plan.

    Disadvantages
    Some of the disadvantages of using moving averages are:-
    * Possibility of False breakouts or false crossovers due to the lag.
    * It is best used only during certain specific market sessions for respective currency pairs to be traded.

    My Two Cents : From my trading experience with the use of EMA of 18, 30 i would suggest that it is better to be used during certain specific timing. Like for example for GBP/USD, GBP/JPY, EUR/USD, EUR/JPY only London market opening session is suitable such that false crossover which was formed during Asian market session can be eliminated from considering for trading.

    Irrespective of any trading strategy always use risk and money management in each and every trade to survive in the forex market. Only then profits can be reaped. Make sure to withdraw the profits made, for fulfilling the commitments.
    Never deviate from the trading plan, always stick to the ideal entry plan upon noticing the potential signal generated with the moving average crossover.

    Also do not forget to exit the trade upon making targeted profits. Only then succeeding in the forex trading business with this awesome trading strategy becomes possible. All the best to all of you. Please share your experience.

    Moving Average Indicator -
    Attached Files Attached Files

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    Last edited by Ashviniurs; 05-20-2015 at 08:35 AM.

  2. #2
    Registered user nsawork's Avatar
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    Thanks for sharing information about the Moving Averages as this is being used by a lot of traders and this also allows those traders who are newbie to learn how to do their trades with success.

    Yes it is more important for us to use this Indicator in certain Time frames when we can see that the results we are going to get will be giving us better Trading results

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    Trader Hukam's Avatar
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    Very good information posted by you in this thread. And thanks for sharing the benefits and disadvantages of moving average with us. As we can see that moving average have many good feature's and it have only few bad points that it not give us any accurate signals in sideways, and could be give false breakout signals some time. Every indicator have disadvantages, and its very clear that we have to use them by proper understanding and wisely in the market. As a long term trader I am using EMA 100 and 200 in my trading chart.

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    Quote Originally Posted by Hukam View Post
    Very good information posted by you in this thread. And thanks for sharing the benefits and disadvantages of moving average with us. As we can see that moving average have many good feature's and it have only few bad points that it not give us any accurate signals in sideways, and could be give false breakout signals some time. Every indicator have disadvantages, and its very clear that we have to use them by proper understanding and wisely in the market. As a long term trader I am using EMA 100 and 200 in my trading chart.
    Indeed that is very much true that each and every technical indicator has some form of drawback nor the other. And the same holds true for the moving average indicator as well. It is certainly advantageous to trade only during the trending market which happens most of the time. And during sideways or ranging market it can be helpful for quick scalping which i do not recommend for all.

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  5. #5
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    Oh nice, sideways market could be a better choice for scalping trading. But personally I not do trade in sideways market I like to follow only the market trend, and moving average helping me a lot to get a best reward from the market trend. This is a very good explanation and discussion about moving average indicator, Ema 18,30, Ema 100,200 these are good selections.

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    Quote Originally Posted by Khimi234 View Post
    Oh nice, sideways market could be a better choice for scalping trading. But personally I not do trade in sideways market I like to follow only the market trend, and moving average helping me a lot to get a best reward from the market trend. This is a very good explanation and discussion about moving average indicator, Ema 18,30, Ema 100,200 these are good selections.
    Indeed even am of the same opinion that profiting upon scalping is not always possible and this is only for trading thrill. And moreover the moving average is best suitable from short term to long term traders. I have found that this is one of the most potential trading strategy which is best when followed with utmost trading discipline.

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    Quote Originally Posted by Ashviniurs View Post
    Indeed even am of the same opinion that profiting upon scalping is not always possible and this is only for trading thrill. And moreover the moving average is best suitable from short term to long term traders. I have found that this is one of the most potential trading strategy which is best when followed with utmost trading discipline.
    The good thing about moving average is that there are not much weaknesses of this indicator, and the other thing is it directly related to the market trend, which is very important to follow in this market for a trader. That's why I like to use moving average too on my charts. I am a part time trader and I like H4 and above time frame's, I use EMA 20 and 50.

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    Quote Originally Posted by forexlearner View Post
    The good thing about moving average is that there are not much weaknesses of this indicator, and the other thing is it directly related to the market trend, which is very important to follow in this market for a trader. That's why I like to use moving average too on my charts. I am a part time trader and I like H4 and above time frame's, I use EMA 20 and 50.
    That is really interesting forexlearner to know that you have been using the moving average indicator on H4 and above timeframe with setting of EMA 20 and 50. But how frequently are you able to obtain the crossover signal, because with such high time frames the number of entries are limited isnt it. And certainly the target would be big. It would be great if you can share your experience with the same.

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  9. #9
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    Moving averages is I think the most common among all indicators. It is not usually used alone but in combination with many other indicators. Like I would use 100 EMA with parabolic SAR to get better signals. There are numerous indicators combinations that can be used with the moving averages.

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    Quote Originally Posted by PROPENSITY100 View Post
    Moving averages is I think the most common among all indicators. It is not usually used alone but in combination with many other indicators. Like I would use 100 EMA with parabolic SAR to get better signals. There are numerous indicators combinations that can be used with the moving averages.
    The use of combination of indicators is totally subjective. But for me i used combination of moving averages with different periods, and the changed periods itself serves me as extra confirmations for determining the current market trend and i also use the same moving averages with different periods for entry and exit of the trade. Certainly each and every one have their own experience and good to know that SAR works really well for you.

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