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Another very useful tool that is usually found in all the Forex platforms toolbox is the moving averages options. Needless to say a moving average is a trending line that helps you gauge the market direction and the market main movements as it is being developed. As always, these tools help you make sure you are on the right track but should not be used in isolation to determine an entry in a trade unless extensively studied and well educated about these tools potentials.
In Forex moving averages are also known as rolling averages, for the meaning of a running average. This is a sum that continues to develop as it progresses during the trading session and will change direction all the time during your trading session.
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Moving averages in Forex are usually either ‘simple’ or ‘exponential’ as the most common although other variations namely weighted moving average and cumulative are also used but a little bit less, we shall get into an overall understanding in order to help you understand a little bit more their use and application in your trading plan. When applied a Forex moving average tries to clean as much market noise as possible to help the trader identify the main market movement rather than the occasional market spike. You can use moving averages in Forex to identify reversals, trend ending or trend starting patterns.
As already told, usually you do not have to learn how to draw or create the lines yourself as most modern trading platforms would have these tools made available to you as a click, where all the lines are drawn for you to maximum accuracy and perfection.
Understand that Forex moving averages are used in conjunction to a timeframe and you need to usually use higher timeframes in order to understand strong patterns rather then just smaller market moves which might be insignificant to the trade. Smaller timeframe decisions sometimes can result into exiting early from a potential trade that would be going where your research had planned!
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Make good use of moving averages when trading Forex and apply them to your trading strategy, remember to always back-test in order to get familiar with the tools before entering any live trades.
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