How to Choose a Forex Moving Average to Trade With
A forex trader can choose a moving average based on the forex chart time frame that he is trading; the forex trader might choose to use this Moving Average indicator on the minute forex charts, hourly forex charts, day forex charts or even weekly forex charts.
The forex trader can also choose to average the closing price, opening price or median price.
Moving average forex indicator is a commonly used indicator to measure strength of forex trends. The data is precise and its output as a moving line can be customized to a forex trader's preferences.
Using the forex moving average is one of the basic ways to generate forex buy and sell trading signals which are used to trade in the direction of the forex trend, since the Moving Average indicator is a lagging indicator and a trend following indicator - this means that it will tend to give late forex entry signals as opposed to leading forex indicators. However, as a lagging forex indicator it gives more accurate forex trading signals and is less prone to whipsaws compared to leading forex indicators.
Forex Traders choose the moving average period to use depending on the type of forex trading they do; short-term forex trading, medium-term forex trading and long-term forex trading.
- Short-term forex trading: 10 -50 MA Period
- Medium-term forex trading: 50 - MA 100 Period
- Long-term forex trading: 100 - MA 200 Period
The forex price period in this case can be measured in minute forex charts, hourly forex charts, day forex charts or even weekly forex charts. For our example we will use 1 hour forex chart time frame period.
Short term forex moving averages are sensitive to forex price action and can spot forex trends signals faster than the long term moving averages. Shorter term forex moving averages are also more prone to whipsaws compared to long term moving averages and a forex trader should choose a forex price period that will generate a forex trading signal early but not give too many forex trading whipsaws.
Long term forex moving averages help avoid forex whipsaws, but are slower in spotting new forex trends and forex trend reversals.
Because long term moving averages calculate the average using more forex price data, it does not reverse as fast as a short term forex moving average and it is slow to catch the changes in the forex trend. However, the longer term forex moving average is better when the forex trend stays in force for a longer time but may also give late forex trading signals.
The work of a forex trader is to find a moving average period that will identify forex trends as early as possible while at the same time avoiding fake-out signals (forex trading whipsaws).