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Moving Average Support and Resistance Levels

Moving Averages can be used as points of support and resistance.

 

When price reaches the moving average, the MA level can act as a point of support or resistance for the price.

 

Buy Signal

If price is on an up trend and starts to retrace, then most traders might wait to buy at a better price when the price hits a support level. Traders will sometimes use the MA to determine the support level.

 

A buy signal is generated when price hits the MA, turns and starts moving in the upward direction. The signal is confirmed when price closes above the MA. Because many traders use the moving averages to generate trading signals, price will normally react to these levels.

 

A stop loss should be set just below the MA. Ideally it should be set a few pips below the previous low.

 

Buy Signal Moving average

Buy Signal

 

 

Sell Signal

If price is on a down trend and starts to retrace, then most traders might wait to sell at a better price when the price hits a resistance level. Traders will sometimes use the MA to determine the resistance level.

 

A sell signal is generated when price hits the MA, turns and starts moving in the downward direction. The signal is confirmed when price closes below the MA. Because many traders use the moving averages to generate trading signals, price will normally react to these levels.

 

A stop loss should be set just above the MA. Ideally it should be set a few pips above the previous high.

 

sell Signal Moving average

Sell Signal

 

Resistance turns support

When a resistance is broken it turns into support and vice versa.

 

This happens when the fundamentals of a currency change and consequently the direction of a currency pair. The direction change is reflected by the moving average, the direction is confirmed when the resistance turns into support or vice versa (when support turns into resistance)

 

Resistance turns support

Resistance turns support

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