Simple moving averages (SMA) and Exponential moving averages (EMA)

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What are simple moving averages and exponential moving averages?

Moving averages are the simplest and most popular indicator used in forex and is often the most reliable. The simple moving average indicator calculates the average closing price of the chosen number of past sessions, e.g. on the hourly time frame with the moving average indicator set to 50MA the indicator will calculate the average closing price of the past 50 1hr prices. The exponential moving average is calculated similarly to the simple moving average but the most recent prices are given more weight allowing the exponential moving average to react quicker when a trend occurs.

How to trade simple moving averages and exponential moving averages

Simple and expodential moving averages are traded using the same techniques, most traders will also use more then one moving average on there chart but different periods set e.g. 200ma 100 ma and 50ma.

Moving average crossover

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Moving average crossover

One way to use moving averages is to buy or sell when moving averages cross over, this can be done using two or three moving averages, e.g. buy when the 100ma crosses the 200ma and the 50ma crosses the 100 and 200ma and sell when the 200ma is at the top, 100ma in the middle and the 50ma at the bottom.

Moving average support and resistance

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Moving average support rejection and breakout

Moving averages can also be used as a dynamic support and resistance. You can either buy on the rejection of the support, sell on the rejection of resistance or wait for a breakout of the moving average.

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