Thursday, January 1, 2009

The Use of Moving Averages

Within the forex trading business, are currently widely used. All of these moving averages gauge the trends within trading over certain time periods, making sure to take into consideration the market’s fluctuations and volume based on a day-to-day basis.

The exact methodology that they use strictly for calculation is really quiet simple. In order to calculate the moving averages, all you have to do is add all of the closing prices and then divide the result by the exact period pertaining to the moving average. There are several different time periods for which the different moving averages are used.

When you are tracking the forex rates from a couple of months ago, the two hundred day moving averages are going to be used. When you are searching for the medium-term trades, the twenty to sixty day averages are being used and last but not least, when you are searching for shorter periods the five to twenty day trading averages are being utilized. The shortest moving average is only going to include one single trading day.

The moving averages shouldn’t be confused as the leading indicator. Moving averages are just a lagging indicator and the investors need to be extremely careful before they place their trades strictly based on the moving averages. There are thousands of novice and even sometimes even experienced forex traders that do all of their purchasing with some complete dependence on the moving averages. Even though no one can stop you from doing this, you are more than likely going to experience some really big losses.

The momentum indicators are the absolute best option for you to look for before you make any type of trade. Stochastic as well as several other momentum indicators provide investor stability for long term trading.

As a forex trader, it is important that you never place any trade based on the short term moving averages. As you may know, haste makes waste, as some of the saner people may have said, and to this very day, their saying remains true for all of those forex traders that are replacing their trading on the entire short term MA’s. All of the forex traders that base their trades on short term moving averages are going to lose everything because they are completely unreliable. The long term moving averages can be very helpful however the shorter ones can’t. You may want to try your luck with timescales as well.

When you are trading within the world of forex, it is extremely important that you take the time to learn all of the information that you can about the short term moving averages and the moving averages in general. All of this information can either help you to be a success or a failure if you choose to not take the information to heart.

The information that is provided to you within this article isn’t written to tell you how to handle you’re trading needs; it’s just to inform you that the short term moving averages aren’t going to do you a bit of good if you base all of your trades on them.

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