Moving Averages

<<Moving Averages>>

  Again, one of the most common tools used by expert traders worldwide, on the run while you are surfing charts of deferent individuals with various strategies, you may find a moving average (or more) placed on the charts of more or less 80% of them, this signifies its effectiveness, although MA is a very simple indicator in interpretation of mechanism of action & understanding of the signals given by this great indicator, it is still of high value and can give a hint of the following direction of the market.

Types of MAs used:

- Simple, exponential, smoothed, linear weighted, each has its significance, but the most used ones are the simple & exponential (i prefer exponential, because it is more related to the recent prices).

Examples of the most important and successful values of MAs:

- 14 (which is the standard in metatrader), 20, 50, 100, 200.

Methods of usage of MAs:

- there are 2 main strategies to deal with MAs and get the desired benefit from them:

(1) cross of price

 here we wait until the price crosses the MA we selected either from downwards upwards so we enter long (buy) or the reverse, so we enter short (sell), actually this is a simple methods, but it needs confirmation.

(2) cross of 2 or more MAs

here we select 2 (or more) MAs one slow and the other is fast for ex. 30 & 9, and we apply them on the same chart, we enter a position after their cross together (the rule is that the fast crosses the slow MA upwards or downwards according to the direction of trend).

N.B:- MAs give us a hint about the direction of the trend from their recent slope, if it is sharp, this means the trend is so strong and it is likely to continue the same direction for a following period of time, if it is flat, this means we are in a no-trend zone, by other words we are in an area correcting the rapid heavy previous move, so we here wait until the trend is clear again, or reverses its direction, enabling us to enter with the counter trend.

>>Among the negatives of MAs generally, is that they give a late decision or entry point, also they need confirmation by other methods, so it is better not to depend on MAs alone.