How to Choose a Moving Average to Trade Forex With - Leading Indicators

Choose a Moving Average to Trade With Strategies - Moving Average Indicator

Before a trader selects a moving average to trade with they will have to determine what type of trader they are and what chart timeframe they use for trading forex. Depending on what type of trader they are, the trader will then determine which moving average period is best to use for their trading method.

A trader can choose a moving average based on the chart time frame that he is trading; the trader might choose to use this Moving Average indicator on the minute charts, hourly charts, day charts or even weekly charts.

The trader can also choose to average the closing price, opening price or median price.

Moving average indicator is a oftenly used indicator to measure strength of trends. Data is precise & its output as a moving line can be customized to a trader's preferences.

Using the moving average is one of the basic ways to generate buy and sell trading signals which are used to trade in direction of the trend, since the Moving Average indicator is a lagging indicator and a trend following technical indicator - this means that it will tend to give late forex entry signals as opposed to leading indicators. However, as a lagging indicator it gives more accurate signals and is less prone to whipsaws compared to leading indicators.

Traders select the moving average period to use depending on the type of trading they do: short-term trading, medium-term trading and long-term trading.

• Short-term trading: 10 - 50 MA Period
• Medium-term trading: 50 - 100 MA Period
• Long-term trading: 100 - 200 MA Period

The price period in this case can be measured in minute charts, hourly charts, day charts or even weekly charts. For our example we will use 1 hour chart time frame period.

Short term moving averages are sensitive to price action and can spot trends signals faster than the long term moving averages. Shorter term moving averages are also more prone to whipsaws compared to long term moving averages and a trader should choose a price period that will generate a signal early but not give too many whipsaws.

Long term moving averages help avoid whipsaws, but are slower in spotting new trends and trend reversals.

Because long term moving averages calculate the average using more price data, it does not reverse as fast as a short term moving average and it is slow to catch the changes in the trend. However, the longer term moving average is better when the trend stays in force for a longer time but may also give late signals.

The work of a trader is to find a moving average period which will spot trends as early as possible while at the same time avoiding fake-out signals (forex trading whipsaws).