We know that the simple moving average is formed by averaging a predetermined number of data points. For example, to calculate a SMA of 10 on the daily charts, simply find the closing prices of the 10 newest daily bars in addition to average them. This creates a single point on the chart.
On the 11th day, the oldest period point is removed from the series while the newest day is added. This is repeated continuously. Because the SMA gives equivalent weight to all the data points in a series, it is seen as the ideal trend indicator for long term trend detection. It is generally utilized for that purpose in forex trading strategy.
Depending on the number of data points employed, the simple moving average removes volatility by smooths out the price to help recognize long term in addition to short term trends. As with all other moving averages, the SMA is a lagging indicator. It always reacts behind the movement of price. Overall, moving averages perform badly in ranging markets. As a result, most traders stay away from implementing the SMA during periods when prices are very choppy.
Some basic strategies employed with the simple moving average consist cross overs. Normally, two SMA's with different periods are entered into the charts. They are made up of a long term signal in addition to a short term signal. Should the long term signal remain bullish, enter a long trade when the short term signal crosses above the long term signal.
Bearish signals are the complete opposite. Most importantly, simple moving averages are never utilized alone. They are usually utilized with a variety of other forex indicators as a means of confirmation.
On the 11th day, the oldest period point is removed from the series while the newest day is added. This is repeated continuously. Because the SMA gives equivalent weight to all the data points in a series, it is seen as the ideal trend indicator for long term trend detection. It is generally utilized for that purpose in forex trading strategy.
Depending on the number of data points employed, the simple moving average removes volatility by smooths out the price to help recognize long term in addition to short term trends. As with all other moving averages, the SMA is a lagging indicator. It always reacts behind the movement of price. Overall, moving averages perform badly in ranging markets. As a result, most traders stay away from implementing the SMA during periods when prices are very choppy.
Some basic strategies employed with the simple moving average consist cross overs. Normally, two SMA's with different periods are entered into the charts. They are made up of a long term signal in addition to a short term signal. Should the long term signal remain bullish, enter a long trade when the short term signal crosses above the long term signal.
Bearish signals are the complete opposite. Most importantly, simple moving averages are never utilized alone. They are usually utilized with a variety of other forex indicators as a means of confirmation.
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