Moving average indicators are used to help you predict future prices. By looking at the slope of a moving average, you can determine the potential direction of the market price. There are three main types of moving averages and each has its own level of “smoothness.” Generally, the smoother the moving average, the slower it is to react to price movements.

Simple Moving Average (SMA)

SMA is the most basic type of Moving Average (MA). SMA is calculated from the sum of all data then divided by the number of periods observed. This formula determines the average price and is calculated in a way to adjust and respond to the latest data used to calculate the average.

For example, if you only include the 15 most recent exchange rates in your average calculation, the old rates are automatically dropped whenever a new rate becomes available. As a result, the “moving” average of each new rate entered into the calculation is based only on the last 15 rates.

Weighted Moving Average (WMA)

The WMA is calculated in the same way as the SMA, but uses prices that are linearly weighted to ensure that the most recent prices have a greater impact on the average. This means that the oldest price included in the calculation receives an additional 1.

The next oldest value receives an additional 2, and the next oldest value receives an additional 3, and so on down to the last level. Some traders find this method more relevant for trend determination especially in very fast moving markets.

The downside to using a WMA weighted moving average is that the resulting moving average line may be more choppy during choppy market times than a simple moving average. This can make it harder to see fluctuations in market trends. For this reason, some traders choose to place both the WMA and SMA together.

Exponential Moving Average (EMA)

EMA is similar to SMA, but the difference is that SMA removes the old price value because there is already a new price, while EMA calculates the average of all Price ranges, starting at the point you specify. For example, to create a 20-day EMA, 20-day MA data is needed first, then this data is used as the initial calculation point, to take the difference and division

Moving Average Crossover

Moving average crossover is a condition where there is an intersection between the moving average of an indicator with a smaller period cutting the moving average of an indicator with a larger period. The moving average crossover that is often used by traders is the crossover between the 50 Moving average forex indicator and the 200 moving average forex indicator.

If 50 crosses above 200 moving average this indicates a bullish trend in price movement and if 50 moving average crosses below 200 moving average this indicator indicates a bearish trend in price movement. The interesting thing about moving average forex strategy is its simplicity in trading system.

The forex market moves up and down and moves in a trend. For this we are advised to look for opportunities only in trending price movements. Because trading in the direction of the trend movement will provide greater opportunities than us taking advantage of up and down price movements or side ways trends.

Benefits of Using Moving Average Crossover

Moving average crossover indicator gives us forex strategy short term and longer term moving average simultaneously. For example using 10 moving average indicator and 30 moving average indicator as short term entry.

Or we can use 50 Moving average and 200 moving average indicators as long term trading entries. If we use the crossover moving average indicator as a forex strategy then we indirectly use a more objective signal because this crossover moving average reflects or reflects the ongoing market movement conditions.

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