How to Use Moving Average Indicator

Why Moving Average?

How to use the moving average indicator, GIC Jakarta - MA Indicator is no doubt in the world of forex trading. MA is a very good indicator if you understand how to use it, however, most traders make fatal mistakes when trading. MA helps reduce the amount of noise present on the price chart. Look at the direction the MA is moving to get a basic idea of ​​where the price is going.

If it slopes upwards, then the price is moving up, but if it slopes downwards, then the price is moving down, and if the direction of movement is sideways, then it can be concluded that the price is in a range or average.

In this article, the GIC journal will provide you with interesting information about what you need to know when choosing and using moving averages.

What is Moving Average?

MA is a technical indicator used by traders to see trends in the market. In stock market analysis, MA is usually most often used is 50 or 200 days to see the movement of the stock market.

There are many advantages to using this indicator. MA is used to provide support in an uptrend that acts as a base or “support”. In a downtrend, MA acts as resistance or ceiling.

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Best Moving Average Settings

MA is obtained based on the average price calculated from a set of numbers and using techniques to get an overall picture of the trend in the data set. Once you have successfully understood the moving average formula, you can start calculating any part to get MA. This can be calculated in any time period because it is very useful in reading long-term and short-term trends.

Using the MA indicator when trading can help traders identify trends. If the price action is above the MA, it indicates a buy position. Conversely, if the price action is below the MA, it indicates that a short position should be taken. Traders can also use the MA crossover method as a trigger to enter a new position. This method is one that is commonly used in trading strategies. To calculate the MA, you simply add up the numbers and divide them by the total value. For example, if you want to calculate the MA over a 5-year period, you would add up the numbers over that period and divide by 5.

Types of Moving Average

It is important to note that there are two main types of MA, namely exponential MA and simple MA. Below are some types of MA that you should know:

Simple Moving Average (SMA)

The SMA formula is calculated by taking the average closing price over the desired period. To calculate the MA formula, the total closing price is divided by the number of periods.

For example, if the last 5 closing prices were:

28,93+28,48 +28,44+28,91+28,48 = 143,24

The 5-day simple moving average is: 142.24 : 5 = 28.65.

Exponential Moving Average (EMA)

The EMA is obtained by calculating a greater weight on the most recent data points. It is sometimes called an exponentially "weighted" MA. This is because the EMA reacts significantly to recent price changes.

The most popular EMAs used are the 12 and 26-day EMAs for short-term MAs, while the 50 and 200-day EMAs are used in long-term trends. When used in conjunction with other indicators, EMAs are useful for traders in ascertaining the movements in the market and measuring the validity of the data.

How to Use MA Cross

MA Crossover is a technical tool used for forex trading where two different moving MA lines cross each other. Therefore, the MA cross over strategy is designed to help forex traders enter and exit trades.

In general, there are 2 main types of crossovers, namely golden cross and dead cross. Here is the explanation below:

Golden Cross

For the golden cross, you only need two averages with different periods, namely, a short-term MA and a long-term MA. When the short-term MA period crosses the long-term MA from bottom to top, it indicates a buy signal.

Dead Cross

Dead cross is the opposite of golden cross. When the short-term MA breaks below the longer-term MA or slower, it signals a sell signal. Remember, it doesn't matter if you use SMA or exponential.

Conclusion

MA is a great indicator to stay on top of trends and reversals. It doesn’t matter if you use exponential MA, SMA or any other as they can be accurate trading tools.

MA crossover is a popular strategy used when entering or exiting a trade. MA also highlights areas of support and resistance levels. Although it may seem predictive, MA is always based on historical data and only shows the average price over a certain period of time.

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