Applying simple moving average to your Forex Trading program

Technical Chart trading is very popular among experienced trading where they use it to determine the support and resistance and the trend of the stock or currency. When combine with a number indicator and different time period, will yield very positive results in trading.

Simple Moving Average

This is one of the most frequently used indicator for charting any time frame. Simple moving average or SMA is actually adding up the total no. of currency price and divide by the total no. currency time frame. For example 10 SMA meaning 10 timeframe of the selected chart, add all the 10 currency price together, then divide by 10 to get the average, thus we call it simple moving average. All the weight age of the last 10 timeframe are equal.

9, 18, 50 and 200

Continuous SMA will show the trend for the currency for the last few designated timeframe. Commonly used timeframe are 9 and 18 together with 50 and 200. Both are used in pairs to show the short term movement and long term movement. Crossing of 9 and 18 SMA are commonly refer to start of a up trend or down trend, while crossing of 50 and 200 SMA will refer to end of a down trend or up trend.

SMA on high and low

This indicator can also applied to daily or hourly high and low prices. Especially useful when setting the profit target and stop loss when trading channel and trending market. With high SMA and Low SMA, you can easily see a channel of upper limits and lower limits. Similar to Bollilinger Bands but are average base on last few high or low price instead.

Use together with Relative Strength Index (RSI)

When using this indicator with RSI, it can indicate the point of reversal for a trend. RSI peaks at 20 and 80 value, will show sign of weakening of the trend with SMA changing direction. By applying trade executing when the indicator show changing trend, trader can earn huge profits if enter the market early when the trend begin to change.

SMA with Open and Close

Some trader uses the open and close price as a time indicator of the trend for that day or hour. Will simple moving average as a median point line, currency that opens with gap in their open and close (previous time frame), below or above the median point will indicate a possible increase/decrease of the price due to news or fundamental influence. This is a great catch for automated trading.

Moving Average Convergence-Divergence (MACD) = SMA (Y) – SMA (X)

This indicator take 2 simple moving average with different timeframe, by subtracting the short and the long timeframe indicator, it show an momentum on the currency trend. Sign of entering trades are when the 2 different indicator cross over each other or cross over the zero line. This will indicate the beginning of trend and the ongoing of the trend respectively. If use wisely, traders can enter a lot of profitable trades during strong fundamental backing of the currency.

Note: MACD uses exponential moving average and in this articles is simply for easiler understanding. Trader are to check the correct algorithm of the indicator prior to using it for his trading purpose.

Source: http://www.bestforexranking.com