How to Choose a Forex Moving Average to Trade with - Leading Indicators
Choose a Moving Average to Trade with Forex Strategies - Moving Average Technical Indicator
Before a trader chooses a moving average to trade with they will have to determine what type of forex trader they are and what chart timeframe they use for trading forex. Depending on what type of trader they are, the trader will then determine which moving average period is best to use for their trading method.
A trader can choose a moving average based on the chart time frame that he is trading; the trader might choose to use this Moving Average indicator on the minute charts, hourly charts, day charts or even weekly forex trading charts.
The forex trader can also choose to average the closing price, opening price or median price.
Moving average indicator is a oftenly used indicator to measure strength of forex trends. The data is precise & its output as a moving line can be customized to a forex trader's preferences.
Using the forex moving average is one of the basic ways to generate forex buy and sell trading signals which are used to trade in the direction of the trend, since the Moving Average indicator is a lagging indicator & a trend following indicator - this means that it will tend to give late forex entry signals as opposed to leading indicators. However, as a lagging indicator it gives more accurate forex trading signals and is less prone to whipsaws compared to leading indicators.
Forex Traders select the moving average period to use depending on the type of forex trading they do: short-term forex trading, medium-term forex trading and long-term forex trading.
- Short-term forex trading: 10 - 50 MA Period
- Medium-term forex trading: 50 - 100 MA Period
- Long-term forex trading: 100 - 200 MA Period
The price period in this case can be measured in minute charts, hourly charts, day charts or even weekly charts. For our example we will use 1 hour chart time frame period.
Short term forex moving averages are sensitive to price action and can spot forex trends signals faster than the long term moving averages. Shorter term forex moving averages are also more prone to whipsaws compared to long term moving averages and a trader should choose a price period that will generate a forex trading signal early but not give too many forex trading whipsaws.
Long term forex moving averages help avoid forex whipsaws, but are slower in spotting new forex trends and trend reversals.
Because long term moving averages calculate the average using more price data, it does not reverse as fast as a short term forex moving average and it is slow to catch the changes in the forex trend. However, the longer term forex moving average is better when the forex trend stays in force for a longer time but may also give late forex signals.
The work of a trader is to find a moving average period that will identify forex trends as early as possible while at the same time avoiding fake-out signals (forex trading whipsaws).
