How can Moving Averages help in Forex Trading

Forex Trading is becoming a more extended and desired occupation for a lot of people all over the world who are living with the desire of working at home but having the ability to gain a full time income. So the need for accurate trading strategies and techniques has become a major problem for all of these new Forex traders.


A new Forex trader should know what a Moving Average means, how it is calculated and what its use as a trading indicator is.


A Moving Average is defined as a technical indicator which shows the average value of a particular currency pair over a previously determined amount of time. This signifies e.g. that prices are averaged over 20 or 50 days or 10 and 50 min depending on the time frame which you are using at the moment of your trading.


As an averaged quantity Moving Averages can bee seen as a smoothed representation of the actual market activity and an indicator of the major trend wich is influencing the market behavior.


This smoothing effect of the Moving Average is a good help when the trader is looking for getting rid of the "noise" in the price fluctuations of the currency pair which he is trading at the moment and a more precise emphasis in the trend direction is required.


The basic mechanics of how Moving Averages can show you where the Forex market is moving  - up or down - at the moment of your analysis is by considering two different time frame Moving Averages and plotting them on the Forex chart. It is very important that one of these Moving Averages is over a shorter time period than the other one: e.g. one will be over a 15 days period and the other over a 50 days period. The most trading softwares which are offered by Forex Brokers will let you do this plotting and much more.


Once you have plotted the two Moving Averages you will notice points of crossover where the shorter time period Moving Average will cross above the longer time period Moving Average which is indicating an upward trend in the market or if the crossing is below the longer period Moving Average which will be an indication of a down trend in the Forex market.


So from this easy concept you can start to understand the basics of confirming trends when checking your Forex charts during your trading time.