What Are Moving Averages? [EXPLAINED]


Can you believe we are now on Level 6?

Wow… Time flies!

As you enter a new level, you know what that means. 

Say it together on 3? 

3…2…1…

Another level, another technical indicator. 

But you wouldn’t have it any other way, right? 

This time round, we will take a closer look at one of the most popular technical indicators, Moving Averages.

It may not sound as fancy as Fibonacci, but trust me, you’ll be chuffed to have this in your trading toolbox.

First things first, let’s look at the definition of Moving Averages.

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What are Moving Averages?

Moving Averages, often referred to as MA, are trend indicators used to represent the average closing price of the market over a specified period of time. 

On the chart, they are displayed as a line that smoothes out price action, and can be a good indication of the actual trend direction.

It looks like this. 

moving averages

Yeah, it’s pretty much just a line overlayed on top of the price.

This kind of technical indicator is also called a ‘chart overlay‘.

Because the moving average (MA) is overlayed on the price chart

Get it? Pretty smart, huh? 😎

Why do Forex traders use Moving Averages?

The main reason moving averages are so popular is simply because trends don’t move in straight lines.

Price zigs and zags so moving averages help smooth out the random price movements.

And by just looking at the slope of the moving average, Forex traders find it easier to determine the trend direction.

Calculating Moving Averages

Calculating an MA requires a certain amount of data, which can be a large (or not so large) quantity, depending on the length of the moving average you choose. 

For example, a ten-day MA will require ten days of data, while a one-year MA will require 365 days’ worth. 

Moving averages can be used over multiple timeframes ranging from minutes, hours, days and weeks.

The shorter its length, the fewer the data points are included in the moving average calculation, which means the moving average stays closer to the current price.

The longer its length, the more data points that are included in the moving average calculation, which means the less any single price can affect the overall average.

But that’s enough mumbo jumbo, let’s talk about how YOU can use these to trade.

In this Level, we will discuss two major types of Moving Averages, the simple moving average (SMA) and the exponential moving average (EMA).

We’ll also teach you how to calculate them and give the pros and cons of each.

Just like in every other level in the HowToTrade Trading Academy, get ready to improve your chances of becoming a profitable trader.

Once you’re pumped and ready to go, head to the next lesson.

See you there!

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