Learn to use the moving average like a pro trader
The use of moving average can take your trading to the next level. This indicator might have very simple functionalities but it can alter your actions and let you find the perfect trade signals. But most of the investors don’t even know the proper way to use the moving average. They simply include a bunch of moving averages with different periods and try to filter out the bad signals in the market. By doing so, they complicate the overall process of trading and get frustrated within a short time.
Moving average should be used in a very simple way. You have to follow some core rules and only then you should be expecting to make significant progress with the help of this indicator. In this post, we will share some professional techniques by which you can truly master the use of moving average.
Different types of moving average
There are four prominent moving averages used in the retail trading industry. As a novice trader, you should be focusing on the simple or the exponential moving average. The exponential moving average is used when you do the data analysis in the lower time frame. The EMA or exponential moving average emphasizes the most recent changes in the price and thus the traders can make quick decisions on a slight change of the price. On the contrary, the simple moving average is mostly used in the position trading method.
Setting up the period
People often mess things up while setting up the period in the moving average. They think that the moving average can be used with any period. Though this is true you need to learn more about the impact of different periods. Click to read more about the tools and indicators used in this system. This should give you a decent idea of why you must learn to set the correct period in the moving average. If you intend to trade in a higher time frame, we recommend that you rely on a higher period. On the contrary, intended to trade in a lower time frame, you should be taking the trades in the lower period.
Selecting the trading instrument
To use the moving average professionally, you must learn to select your pair. In general, professional traders rely on the major currency pairs while dealing with the moving average. On the contrary, if you chose to trade the minor or exotic pair, it would be best to select the exponential moving average. You can also rely on the weighted moving average to take your trades. But remember, the selection of the trading instrument should be done based on the market condition. Try to pick a trending asset so that you don’t have to face any trouble in finding the best trade signals.
Dynamic Support and resistance level
The moving average also acts as a dynamic support and resistance level. If you carefully assess the conditions of the market and see the reaction of the price at the moving average, you will be surprised to see that will act as a strong support and resistance level. Moreover, the slope of the moving average also tells a lot about the direction of the trend. If the slope is positive, expect a strong upward rally. On the contrary, when the slope is negative, you should be expecting a strong downtrend in the market.
Multiple time frame analysis
Some traders often get confused while doing the multiple time frame analysis. They forget the fact, that a higher time frame should be given priority while taking the data reading from the moving average. And try not to use the moving average data right before the major news release. If you do so, multiple time frame analysis is not going to protect your trading capital. You may also use the demo account to learn the proper use of the moving average in the higher time frame.