This article looks at all the uses you have for a moving average with foreign exchange trading.
There are a lot of traders who do not understand all the ways that you can use moving averages when you trade. These traders assume that the moving average can only be used for trend identification. However, there are a lot of different things that you can do with the moving average when you use it with foreign exchange trading. You should consider all of this when you look at foreign exchange trading.
Moving Averages and Trends
The most common use of the moving average is to identify the trends that come on the market. The trend is identified through the lagging indicator which means that you are not going to be looking at new trends. The trends that the moving average is able to find will be ones that have already started on the market.
Once you find the trend with the moving average you should use other indicators to confirm this. This is one of the things that many traders assume the moving average cannot accomplish. While you can also use the moving average for confirmation there are many traders who prefer to have a different conformation indicator.
Momentum for Foreign Exchange Trading
It is possible to use the moving average to determine the momentum of a trend. This is not the most commonly used method, but for people who enjoy the use of this indictor it is an option. In order to d this you will need to have a number of different moving averages on the charts. The different moving averages will need to be based on different timeframes.
The most common combination of moving averages for this will be a 50 day, 100 day and 200 day moving average. There are some traders who find this momentum to be hard to read. If you are one of these traders then you should consider the use of a different momentum indicator.
Use as a Support Level
It is possible to use the moving average as a support level. There are a number of traders who have trading strategies that work with the use of a support level. There are other traders who use the support and resistance levels to create a range channel to trade with. This is something that the moving average is also able to create.
The use of the support and resistance level allows range traders to also make use of the moving average. The moving average that you are going to use will vary depending on the timeframe that you are trading on. You may need to try a number of parameters before you find the moving average timeframe that suits your trading.
Placing Stop Loss Orders
When you analyse the forex make you need to consider where you are going to place your stop loss orders. It is possible to use the moving average to determine where these orders are going to be going. This will generally come where the price action crosses the moving average. Of course, there are others methods that you can use to determine where to place the stop loss order.