How To Apply Appropriate Moving Average

 

How To Appropriate Moving Average

Moving Average is a good tool to apply in all trades and finding the appropriate moving average is important, because it enables one to make a good trading decision. Here, in this short article you will learn how to find appropriate moving average to apply in your trading decision.

Also Read: Relative Strength Index Trading Strategy

Market Trends

When the market starts a trend in a specific direction, the trend may frequently continue upward at a certain angle, which merely shows the strength of the purchasing forces over a given length of time. It is vital to remember that these patterns may last for a long time, maybe many months or years. Having stated that, we can use a SMA (Simple Moving Average) to identify this trend and utilize this moving average to plan our future trades.

Also Read: The Best Bollinger Bands Trading Strategies

Appropriate Moving Average

If we use a moving average with a too small time period, such as a 10-SMA, we may see the market cross below and above, resulting in a lot of false trade signals. On the other side, if we choose a moving average with a time period that is too lengthy, we risk missing trades since the market may not draw all the way back to this moving average, such as the 30-SMA illustrated below.

However, we could see that the market tried and failed to break below its 20-SMA, therefore we may utilize this moving average to plan our next long trade. In this situation, traders may pause for the CADJPY to retrace to the 20-SMA before attempting to 'close' below. Taking this a step further, we may set our protective stops below this moving average at a level we do not feel the market will trade to.