MA indicator definitely belongs to forex indicators hall of fame. It even might be its most prominent member. It is one of the oldest and most used – from retail forex traders to hedge funds.
MA is a tool of technical analysis that reduces market noise and lets us concentrate on price itself. It does so, by adding together selected amount of price closes (period settings of indicator) and dividing them by period, to get an average price.
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Final data provided by MA forex indicator are unavoidably belated, however this does not influence wide range of MA indicator uses.
MA is mainly trend following indicator
Adjusting the indicator calculation period upwards, will lower its sensitivity to price noise. This will also increase its lag, however we can get valuable readings of current price value compared to the average over the chosen period. This can be used as tool to confirm the trend, but also to find a good entry point.
Entry point can be determined by combining two or more MA with faster period. For example if we plot MA 7, with MA 21. MA 7 trending above MA 21 will signalise uptrend.
Different Moving average calculations.
MT4 platform offers 4 different types of moving averages.Simple (MA). Exponential (EMA). Smoothed (SMA) and Weighted (WMA). All of them can be applied on different price (LOW, HIGH close, open)
The main difference between them, is in the way they compare most recent price data in comparison to older price readings.
Simple moving average (MA) – Considers all readings from chosen period to be equally important.
Exponential moving average (EMA) – Puts more emphasis on most recent readings.
MA forex indicator, can be supplemented with other indicators. MACD can be added to further confirms the trend and time the entry, same as oscillators such as RSI or Stochastic.
When we plot MA directly into RSI window, MA will function as a filter discarding a lot of false RSI signals.