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How to pick a moving average for trading - Leading forex indicators

Pick a moving average for Forex trading strategies. Guide to the moving average indicator.

Before a trader chooses a moving average to trade with they will have to figure out what type of trader they are and what chart time frame they use for trading forex. Depending on what type of trader they are, the trader will then determine which moving average period is best to use for their trading method.

Traders pick a moving average based on their chart timeframe. Forex traders might use it on minute charts, hourly charts, daily charts, or weekly charts.

The forex trader also retains the option to calculate the average based on the closing price, the opening price, or the midpoint between the two.

The Moving Average technical tool is frequently employed in Forex analysis to gauge the momentum of market trends. Its output, a plotted line, is derived from precise data and offers customization options to suit a trader's specific preferences.

Using the moving average is one of the basic ways to generate forex buy & sell signals which are used to trade in the direction of the price trend, since the MA technical indicator is a lagging indicator and a trend following indicator - this means it tends to give late forex entry signals as opposed to leading forex indicators. However, as a lagging forex indicator it generates more accurate forex trading signals & is less prone to whipsaw signals compared and analyzed to leading forex indicators.

Forex traders pick the length of time for the moving average based on how they trade: for very short times, for medium times, or for very long times.

  • Short-term trading: 10 - 50 MA Period
  • Medium-term trading: 50 - 100 MA Period
  • Long-term trading: 100 - 200 MA Period

The forex price period in this case can be measured in minute charts, hourly charts, day charts or even week charts. For our example we will use 1H chart time frame period.

Short-term moving averages are sensitive to price action and can spot trends signals faster than the long-term moving averages. Shorter term moving averages are also more prone to whipsaw signals compared and analyzed to long term moving averages and a forex trader should choose a price period that will generate a trading signal early but not give too many forex trading whipsaws.

Long-term moving averages cut down on false signals in forex but lag in finding new trends or shifts.

Long-term moving averages use more price data, so they react slower than the short-term ones and don't flip direction as quickly. That's actually a good thing if the trend sticks around, but it also means your signals can come in a bit late.

One job is to identify a moving average (MA) period that can identify trends as quickly as possible while also minimizing false signals.

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