This indicator is considered as the most fundamental of the trend indicators, especially because it shows on the one hand the direction of movement of the tool and on the other the potential levels of support or resistance. Moving average uses the average price of the currency pair at closing (but can also use the price at opening or closing) and books it down on the graph.
The result is a fairly tight line. You can influence on the values of the indicator as you reset the frame time which is used for average price at closing. In short periods moving average is sharper , while longer periods make it smooth.
Moving average signals
Moving average trading signals indicate the given currency pair that follows the trend. Alerts for opening a position – when the currency pair is in ascending or descending trend and the price starts from the next trend moving average.
Signals for closing a position – when the investment is in ascending or descending trend. Here traders usually put 'stop loss' order above or below the moving average. When the indicator monitors the trend the stop order is moved so that to monitor the indicator. If the price pierced moving average, the contract will be executed and the position will close.
Advantages of the moving average:
- Identify simple trends
- Flexible and can be set so that it reflects both short and long periods.
Disadvantages of the moving average:
- Follow the price on the market with some delay. Calculated data are historic, which is not always an indicator of what that can be expected in the future and this to be repeated.
What is more in consolidating markets and markets „in the channel” it can not provide clear levels of support and resistance.