Many traders rely heavily on technical analysis indicators as a basis. One of the most basic technical analysis that is very popular is the indicator moving average. Sometime before may have me explain about other general indicators. Well, now turn to explain how to use the moving average indicator as the basis of our technical analysis. In this opportunity, I will show the basic techniques and best served with a few demonstrations. So the traders could understand well to use these basic technical analysis tools.
What is a moving average?
Simple indicators were created to calculate currency movements the average period of time is a moving average. This indicator will see movements of earlier and later forms a line that we can use to analyze price movements next.
The type and the type of moving average
in the development, moving average, there are two types namely the simple moving average and exponential moving averages.
Simple Moving Average (SMA)
Simple Moving Average (SMA) is the most simple MA. Yes, true to its name: simple. But don’t underestimate this simple ability, because with the proper use of it can lead you to recognize price movement.
Exponential Moving Average (EMA)
Calculation of EMA is not as simple as high school. EMA gave more weight in the calculation of the average price in a given period. The effect is likely to be more sensitive to the EMA price movement so that the EMA to move a little bit more aggressive than high school.
Today I want to share more and presents a tutorial on how to use the indicator moving average, not just one but two moving average moving average. This method is referred to as a moving average crossover. This may be one of the first because this indicator is the main indicator used to create the previous decade trading system. If we look at the analysis trader from 50 years ago, especially those that focus on commodities, we will see two moving averages in taking action.
This indicator was originally created for the Futures market. Many indicators that we often see used to trade stocks today were originally created for commodities and futures. Earlier in the 80s, the stock market is relatively quiet and not show too much volatility, there are no short-term traders to create the volatility we have seen in the forex market today. Commodity markets are always substantially more unstable in the past. Therefore, the indicator is indispensable to help the trade we are doing.
How to use the moving average indicator
In using them, the moving average is usually used more than one. Two moving averages used are fast moving average and the slow moving average. A cross between the two moving average is referred to as a crossover. Moving Average Crossover uses two different time frames. The first frame is 90 days and the second time frame is 14 days. I find that using a combination of the two in this time frame produces a good mix between a short-term time frame and long-term time frame. Another reason why I use the 90-day period because it consistently produces the best results of all time frames that have been tested.
To avoid errors when using moving average
You must use the moving average indicator on the right conditions, for the satisfactory results. This is where the biggest problem arises. Most traders don’t use two moving average on the right market environment. I have seen many times when merchants use the moving average when a flat market and trends for less. I have seen, many traders use these indicators when the markets were deserted. This is not one of the functions of establishing these indicators. If we use them when market conditions are wrong, we will never realize the actual benefits of the tools of the trade.
Apply a price reversal occurred After Crossover
The best time and the only time it is good to use a moving average crossover. It’s a particular stock, or other market has been saturated, reverses direction and had already begun to fall back. Let me show you some basic examples so that we can get how to use the indicator moving average.