Technical Analysis of Moving Average Forex Indicator
Forex Trend Identification
The moving average can be used as an indicator for generating trading signals. A buy or sell Forex signal is generated when price either moves above or below the moving average, respectively.
If the MA is heading upward in diagonal manner then the general market trend is upwards.
If the on the other hand the MA is heading downwards in diagonal manner then the general market trend is downwards.
Upward Forex Trend/Bullish Trend
If the MA is moving up, then the trend is upwards and the signal generated is a buy/bullish signal.
As long as the price location is above the moving average then the Forex trend will remain as an upward trend. The moving average will act as a “support level” and price action of the chart candlesticks should not close below the MA.
When the price moves above the MA and closes above the moving average, a buy signal is generated.
Forex Traders, who want to confirm the trade signal before implementing it, should wait until the MA line turns and starts to move in an upward direction. It is always best to wait for the confirmation signal so as to reduce chances of a whipsaw.
Downward Forex Trend/Bearish Market
If the MA is moving down, then the Forex trend is downwards and the signal generated is a sell/short signal.
As long as the price location is below the MA then the trend will remain as a downward bearish Forex trend. The MA will act as a “resistance level” and price action of candlesticks should not close above the MA.
When the price moves below the MA and closes below the moving average, a sell signal is generated.
Traders who want to confirm the signal should wait until the MA line turns and starts to move in a downward direction. This will reduce the chance of trading a whipsaw.
Range Market signals
Range Market signals can also be identified using the MA. Range Market signals will be illustrated in the next lesson.
Moving Average Crossover Method
The crossover method is also another Forex signal generation method that is more favored by currency traders compared to the above signal generation method. It is also the simplest form of a trading system widely used by traders. This MA crossover method is combined with other technical indicators to form more complex trading systems.