Forex Indicators: Moving Average

moving avarage indicatorAs you know, the moving average or as it is also called the dynamic average is one of the most widely used indicators in technical analysis. Like any trend-following indicator, moving average works well during the development of a new strong trend, but its effectiveness decreases when trading currencies takes place within the price band. For this reason, the moving average is better to use for identification and tracking trends, but not for their predictions.

Thus, the main usage for the moving average in technical analysis is to identify and confirm the trend. There are certain basic techniques that a trader can use to determine the trends by movements of a certain currency pair.

The simplest method of analysis is a simple observation of the direction of the moving average indicator. This allows you to define strong increasing or decreasing trends.

Another way is watching the positions of the current price and the indicator of the moving average. If the price is above the moving average, then the currency is in increasing trend, the opposite situation indicates the presence of a downward trend.

As already mentioned above, for a successful usage of the moving average there must be a strong (long) increasing or decreasing trend. When the currency rates stay within the price band, the moving average, as an indicator that reacts to changes with some delay, does not provide useful information to a trader.

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