Moving average is a very suitable Forex indicator if you use this properly. But, most of the traders face problems in use this. There are two types of this indicator. One is EMA (exponential moving average), another is SMA (smoothed moving average). You can ask a question of which one will be better to use. Here, the choice of the traders can highly influence their trading process.
There is a significant difference between the EMA and SMA. EMA is quicker than the SMA. When the value changes the direction, EMA identifies this quickly. On the other hand, SMA takes time. This is not possible to say one is better than another. Both have some pitfalls. Sometimes, EMA provides wrong signals. On the other hand, SMA can keep the investors in trades for a long time during the time of short0live value correction. Though this moves slowly, it provides fewer fall signals. So, this depends on the businessmen’s trading style which will be suited them best.
After choosing the moving average, the investors are required to find out at which time the indicator gives better signals. For this, people need to choose or trading styles such as day trading or swing trading. Then, they need to identify the purpose of using this.
The Best Periods for Day Trading
In this style, a person needs to make quick decisions and quick action, so he or she will prefer EMA as it gives quick signals. In terms of period, there are three types of moving averages (MA) that can be applied. The 9 or 10 indicator is fast-moving and generally used as a directional filter. 21 period is medium and most appropriate, when it comes to the term of riding trends, this performs better. 50 period is appropriate for identifying the long term direction of the market.
The Best Periods for Swing Trading
Swing traders mainly trade in the higher time frame and hold the position for a long time. So, their first preference is SMA. A swing trader also applies the higher period moving average to ignore the unseasonable signals. Four moving averages are significant for this style. 21 period indicates, the MA is most likely to create result for the short term traders. 50 period is very popular to the investors because this is used to ride the trends.100 moving average can attract the investors as this works better for support and resistance. On the regular price chart, the 200/250 period is very famous as this explains one year of value action.
There are three ways through which this indicator can be used by the traders. Let’s know about them.
Trend Direction and Filter
The professionals use EMA for staying on the right side of the business field to effuse the trade-in false direction. This one technique can bring a great change in the trading career.
The Support and Resistance and Stop Placements
The moving average performs perfectly as support and resistance levels. So, the indicator can help the traders with is support and resistance business.
Bollinger Bands and the End of the Trend
Bollinger band is the technical indicator. The investors will find the 20 periods of the Bollinger band in the middle of the moving average, and the outer bands quantify the value changeability. In the time of ranges, the value fluctuates throughout the moving average, though the outer bands are very significant. In the time of market trends, the Bollinger bands can help the investor to stay in trades. The validity of the moving average can be lost in ranges, but the Bollinger band will help the investors to analyze the value of the currency pair appropriately.
So, you might be understood that this indicator is very useful for the business process as it can be used in different ways.