Forex is one of the fascinating financial assets to trade. It is a high risk game. But if you can handle the risk religiously; you can get stellar results because of the currencies. Technical analysis is one of the ways with which you can trade. There are some tools like indicators to help you make better decision. It is beneficial to you to know these technical indicators. Technical indicators help you unravel the hidden meaning of the currencies. One class of technical indicators is called moving average indicator. These indicators help you to determine the trend.
Elementary Form of Indicator
It is the basic moving average indicator which is simply an average of currency of specified period. It takes an input as periods which can be anything from minutes to weeks. 21 days moving average is most common. This is nothing but an average of the currency prices of last 21 days. For the next day, price of first day is excluded and yesterday’s price comes in. There are some variations of this indicator like exponential with some mathematical variations. With this indicator you can determine the trend with two methods. A simple look at the graph will tell you the trend. The other method is based on the location. Trend is up if the indicator is above the prices of currency and it is down if it the indicator is below the currency price.
Add Envelop to Indicator for More Data
Other moving average indicator is moving average envelop. It presents you more information than simple indicator. It consists of a band around the price of a currency which indicates the overbought and oversold conditions. Envelop is formed at equal percentage above and below the average. Currency you analyze and the timeframe will decide the percentage of envelop. Price above the indicator and closer to upper band confirms the up trend. If the price is below the indicator and close to the lower band, the trend can be confirmed as down. The price dillydallying near the indicator away from either of the bands confirms the consolidation phase. This indicator helps to determine the trend or the consolidation phase.
Advanced Version of the Indicator
An advanced version of this type of indicator is known as MACD. You are required to give inputs of exponential averages of three periods. This indicator has two lines. The default value of the inputs are 12, 26 and 9. The first line is the difference between the fastest and slowest averages. By default it will be the difference of 12 and 26. This line is known as the fast line. The second line is called signal line which is nothing but an exponential average of the third input. By default it is 9. When these two lines cut each other, it is considered to be a buy or sell signal. This indicator has a one other variation which is known as MACD line indicator.
The trend is confirmed when you use moving average indicator with the price of the currencies. It can not be used when the currency is not trending. You should first determine the trend and then use this indicator to confirm the buy or sell signal.
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