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| Learn the Forex ABC's |
| The complete beginners guide to Forex Spread Betting. |
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| Chapter 4 - Moving Averages |
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| Uses for Moving Averages |
Instant SMS Trade Alerts with FTSE 100 Club |
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There are many uses for moving averages, but two basic uses stand out:
- Trend identification/confirmation
- Support and Resistance level identification/confirmation
Trend Identification/Confirmation
There are three ways to identify the direction of the trend with moving averages: direction, location and crossovers.
The first trend identification technique uses the direction of the moving average to determine the trend. If the moving average is rising, the trend is considered up. If the moving average is declining, the trend is considered down. The direction of a moving average can be determined simply by looking at a plot of the moving average or by applying an indicator to the moving average. In either case, we would not want to act on every subtle change, but rather look at general directional movement and changes.
Support & Resistance
Another use of moving averages is to identify support and resistance levels. This is usually accomplished with one moving average and is based on historical precedent. As with trend identification, support and resistance level identification through moving averages works best in trending markets.
Moving Average offers dynamic support & resistance zone and the same rules apply to those of static support & resistance levels... Support becomes resistance upon a break. The opposite is true that resistance becomes support once price breaks.
Important Note on Moving Averages
Moving averages can be effective tools to identify and confirm trend, identify support and resistance levels, and develop trading systems. However, traders and investors should learn to identify securities that are suitable for analysis with moving averages and how this analysis should be applied. Usually, an assessment can be made with a visual examination of the price chart, but sometimes it will require a far more detailed approach. |
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