THE USES IN FOREX TRADING OF MOVING AVERAGES AND

THE USES IN FOREX TRADING OF MOVING AVERAGES AND
MACD
by: adrian pablo
moving averages: if you consider the
"TREND-IS-YOUR-FRIEND" STATEMENT OF TECHNICAL
analysis as a true sentence, the moving averages
will be very helpful. moving averages tell the
AVERAGE PRICE IN A GIVEN POINT OF TIME OVER A
defined period of time. they are called moving
because they reflect the latest average, while
ADHERING TO THE SAME TIME MEASURE.

A WEAKNESS OF MOVING AVERAGES IS THAT THEY LAG
the market, so they do not necessarily signal a
change in trends. to address this issue, using a
SHORTER PERIOD, SUCH AS 5 OR 10 DAY MOVING
average, would be more reflective of the recent
price action than the 40 or 150-day moving
AVERAGES.

ALTERNATIVELY, MOVING AVERAGES MAY BE USED BY
combining two averages of distinct time- frames.
whether using 5 and 20-day ma, or 40 and 150-day
MA, BUY SIGNALS ARE USUALLY DETECTED WHEN THE
shorter-term average crosses above the
longer-term average, i.e. price will likely go
UP. CONVERSELY, SELL SIGNALS ARE SUGGESTED WHEN
the shorter average falls below the longer one,
i.e. price will likely go down.

there are three kind of mathematically distinct
MOVING AVERAGES: SIMPLE MA; LINEARLY WEIGHTED
ma; and exponentially smoothed. the latter
choice is the preferred one because it assigns
GREATER WEIGHT FOR THE MOST RECENT DATA, AND
considers data in the entire life of the
instrument making of it a more accurate
INDICATOR.

macd: moving average convergence divergence:
macd is a more detailed method of using moving
AVERAGES TO FIND TRADING SIGNALS FROM PRICE
charts. developed by gerald appel, the macd
plots the difference between a 26-day
EXPONENTIAL MOVING AVERAGE AND A 12-DAY
exponential moving average. a 9- day moving
average is generally used as a trigger line,
MEANING WHEN THE MACD CROSSES BELOW THIS TRIGGER
it is a bearish signal and when it crosses above
it, it's a bullish signal, with the
CORRESPONDING IMPLICATIONS FOR THE CURRENCY'S
price in each particular situation.

as with other studies, traders will look to macd
studies to provide early signals or divergences
BETWEEN MARKET PRICES AND A TECHNICAL INDICATOR.
if the macd turns positive and makes higher lows
while prices are still tanking, this could be a
STRONG BUY SIGNAL. CONVERSELY, IF THE MACD MAKES
lower highs while prices are making new highs,
this could be a strong bearish divergence and a
SELL SIGNAL.

about the author:
ADRIAN PABLO; FOREX TRADER [2]AND FREELANCE
writer.

>> HTTP://WWW.1-FOREX.COM

CIRCULATED BY ARTICLE EMPORIUM [3]
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