Lesson #28 Simple Moving Averages

Moving averages is a classic foreign exchange indicator very popular with today’s traders. This is a trend direction indicator which calculates simple price averages for a specific time, presenting the average value of the price of a currency vis-a-vis a set of value.

This indicator is commonly utilized in technical analysis because it is easy to identify and back-test. Automated trading systems use moving averages or some of its derivation method to create buying and selling signals.

In a technical point of view, the moving average method is a means of instituting a change in the direction of the trend, as well as eliminating the noises, smoothens the price fluctuation and making the chart clearer for trading.

Moving averages is also a lagging indicator by which the average closing price of a currency is plotted for a defined number of sessions. It aids in forecasting future prices and by looking at the slope of the moving average, price movements can be predicted.

In general, it can be said that the smooth moving average reacts slowly to the price movement while rough moving average quickly respond to the price movement.