In previous Article I explained how crucial support and resistance is to any type of trader. I showed you horizontal and diagonal support, trend lines and channels. Another form of support & resistance that I use, and you may choose to do so, are moving averages.
As the name suggests these lines are dynamic and move along with price action.
An SMA (Simple Moving Average) is the price of a candle at a specific time – its open, mid or close. I use the closing price of a candle. A Moving Average line is created by dividing the closing price by the time frame. Thus a 10 day moving average on a Daily Chart would represent the average 10 day closing price divided by 10 days.
Like many traders, I only use EMAs (Exponential Moving Averages). An EMA is weighted so that price is more relevant to the most recent candles closing prices and reacts quicker to recent changes and is therefore more sensitive.
In the image to the left see how price repeatedly bounced off the blue line (55 ema) on a recent Euro/$ chart.
In this instance had you shorted (sold) the Euro versus the $USA each time price hit this mobile resistance you would have had a winning trade!
As ever no indicator can be used in isolation, but if you combine previous support & resistance lines that I showed, plus fibonacci and candlesticks you have a winning formula.
As with all technical indicators, there is no one type of average that a trader can use to guarantee success, but by using trial and error you can undoubtedly improve your comfort level with all types of indicators and, as a result, increase your odds of making wise trading decisions.
Exponentional Moving Averages
I show in the article which EMAS I prefer and how to use them. If you would like to learn more about how to use EMAS for entries, exits, stops and targets then consider joining my low cost forex mentor program. Those joining through this link get the chance to do so for only $1 for the 1st 7 days! See all the educational videos, daily analysis, tips and advice: CLICK HERE>>