Vladimir Ribakov explains how moving averages work as trend indicators in forex, covering the four main types and why they fail in ranging markets. Use shorter periods for short-term trends and longer ones for long-term, spacing two or three MAs apart by at least a factor of two to avoid overlapping signals. An MA cross alone doesn't guarantee big moves, so confirm with multi-timeframe analysis.
Chapters
Here is what you need to know about the moving averages in forex trading. Moving averages is a trend-following indicator. It would be very useful in trending market. It would be very unuseful in ranging market conditions. The very basic definition of the moving average is that it gives you the average of the last X bars or X periods. So, for example, If you want to know the average price or the average value of the last 14 bars, you need to set the moving average to be 14. There are different methods to calculate the moving average and the different type of moving average. There is the classical one, the regular moving average, the simple one. There is the exponential, the smooth, and the linear weighted moving averages. The formula for calculation for each of them is slightly different, and therefore the value or the outcome they will give you would be slightly different. The bigger the value of the moving average you use, the bigger the trend you can refer to. For example, for short-term trends, don't use moving average of 200. There Because there is no reason to look so much back. And for long-term trend scans, do not use short moving average like 5, 10, or 14. Unlike many traders' expectations, you do not need multiple moving averages on your chart in order to be able to trade better or call the trends better. You need only 2, maximum 3 moving averages. And that's all. Big recommendations: use multiplier of 2 or higher between the moving averages. So, for example, if the first moving average is 20, don't use the next one as 25 or 30. Make it at least 40, ideally even higher. Another important tip: a cross of moving average will not ever guarantee that the market will move hundreds or thousands of pips in your favor. Remember, multi-timeframe usage of moving averages analysis will help you to find much more reliable trends. Here is an example on NZD/USD 4-hour chart where the moving average crossed to the downside and the trend is clearly bearish. So when you will go to the lower timeframe like the 1-hour chart, you will be able to join the ongoing higher time frame trend every time the market makes the retraces and provides further bearish slope of the moving average to the downside. Join our family, the Home Trader Club, for more trading education and real-time trading opportunities, access to our community, trading tools, books, and so much more.
