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Moving Averages (MA) Whipsaws and False Signals in Range Markets - MA Whipsaws in Range Markets

Moving Averages Strategy for Range Markets

Moving average whipsaw is a fakeout signal that is generated by the Moving Average indicator, when this indicator gives a signal in one direction - then the indicator quickly turns around and gives a signal in the opposite trend direction. This is called a moving average whipsaw signal.

The forex moving average indicator serves as a valuable technical charting tool for trading once a market trend has developed. However, it is susceptible to whipsaw fakeouts in rangebound market conditions.

The Moving Average is prone to whipsaw fake-outs during a range-bound market because the price is volatile and keeps moving around the average, causing the forex moving average indicator to give signals indicating upward trend and then quickly changing to give sell signals.

That is why the Moving Average(MA) indicator should not be used for trading forex in a market that stays in a range.

Ranging Market and Whipsaws - How to Trade Forex on a Range Market

Range Bound Market & Whipsaws - How to Trade Forex on a Range Market

This is why it is best to combine this forex moving average indicator with other indicators when generating signals to trade forex currencies with.

By combining the moving average indicators a trader will confirm the signals generated by the forex moving average indicator with the other indicators - if the other indicators give a signal in the same direction as the signal given by the forex moving averages then a trader can open a trade in the direction given by the moving average indicator & the other indicator used to confirm the signal given by the forex Moving Average.

By combining the forex moving average indicator with other indicators, traders can create a system that helps them identify which signals generated by the forex moving average are likely to be whipsaws and which are more reliable.

A trade should only be initiated if the signals produced by the forex moving averages align with those produced by the other supplementary indicators.

Good indicators to combine moving averages with are RSI & MACD technical indicator.

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