Moving Averages

A moving average is an indicator that provides information on the direction and the strength of a trend. It indicates an average price over a specific period. (MA10 = average price over 10 days)

There are several different types of moving averages. A simple moving average gives equal weight to each price. Weighted and exponential moving averages give more weight to the most recent price(s).

The duration of a moving average must be determined according to the length of the market cycle that you are tracking, for example 50 or 100 periods for long-term cycles and less than 25 for short cycles.

Because there is a delay between the evolution of the moving average and that of current prices, it is hard to find a moving average that makes you win consistently.

Interpretation:

The price of a currency will be above the moving average in an upward trend and below it in a falling trend. If the market doesn't express any definite tendancy, the price will vary above it and below it.

Whenever prices cross the moving average, it can be an indicator that it's a good time to buy or sell.

By using two moving averages (a short one and a long one), it is possible to spot changes in trends and therefore to generate buying or selling signals.