Simple Moving Average - How Simple Moving Average Can Make More Profit

 

In this article, I want to discuss what a simple moving average is and how it can be used in your Forex trading to help you be more profitable. Simple moving average or SMA for short is used as an indicator of the current market sentiment.

An SMA can be appreciated by technical traders that like to use indicators to give them a direction in the Forex market. A moving average is just that, always moving. So, when looking at your chart, every new candle will affect the MA.

So, for instance, let’s assume that you are using a 100 period SMA. That means that if you are looking at a daily chart it is giving you the average of the last 100 days. So, then the next day will change that average. This applies to the minute, hourly, or weekly chart.

Now where this technical indicator can help you in your trading is the simple fact that a vast majority of traders use this tool as well. So, if most traders are using the SMA and it appears to be trending up then it would be fair to assume that most traders are going to go long or buy which in turn will cause this pair to trend even higher till fear is reached that the ceiling has been met.

I have already mentioned the 100-day moving average but the 200-day MA is also a very prominent technical indicator that is used by many technical traders. So now we have the understanding that this is a rolling average that is in constant motion.

Now other than the SMA, there is also the exponential moving average which also takes the last certain periods into account however it uses periods of time closer to present with more importance. This may be wanted by many traders however not the majority. It’s a fact that when it comes to technical analysis the simple moving average is used by more traders than any other technical indicator.

So how do you use the SMA and what time frames are more indicative of actual market movement?

1. As far as time frames are concerned the ones, I have found to give me a good indication of market movement is the M15, hourly, and daily time frames.

2. Next I use both the 100 and the 200-day moving averages so I have signals of different strengths to give me an idea of how sure the market is in its direction. For example, if the market breaks through the 100-period moving average but I do not feel that the market is sure I can wait till the 200 period MA has been broken.

Now I'm sure that as soon as you have these time frames on your favourite trading platform with the 100 and 200-period simple moving averages that you will be able to see how accurate it is and where you could have made some profit.

So now I would like to encourage you to continue your learning in Forex trading and keep the simple moving average in mind and remember that it is just a rolling average.