How do moving averages work in Forex

Hi Everyone,

I have been trading now for about 9 months and have had my ups but alot of downs, I'm still trying to find the right way to go about trading forex, I have mostly been using daily reports but would now like to try moving averages but am not really sure how it works..... Could someone pls help me out?

ok, moving avg is primarily used to plot the avg price per every (x) amount of bars.

now, as far as MA systems go, i wouldn't let you go there. Stay away from MA only systems.

what i suggest you do, is to look on the market in a broad long term sense. zoom out to the monthly/weekly chart of a pair and compare the fundamentals of each currency with wat u see on the chart. From what u see on the charts, and the trend in interest rate statements and inflationary reports you can make an educated guess (based on charts+ foundamentals) as to where the trend can take the price in the future.

now with that in mind, u can zoom down to daily chart and study the price movement. Apply james16 bar patterns and trade in the direction of the trend. learn proper money management and treat your fund like a business.

this is probably gonna be the hardest part: Cut losses short and let profits run. how?
consider this: A technical analyzed trade setup works because other traders made similar analysis and entered the trade in the same direction...now if for some reason the trade is not working out it simply means the trade has failed and u must scale out of the position

IF the trade setup works and is progressing nicely, you can add to the position (SMALLER SIZES PLEASE) until the trend has died out.

and last but not least, a trend does not turn on a dime. It usually takes a good battle to turn a trend around

Could not have said it better.

I use MA crosses... but only on the dailies (to much noise on smaller TF) and with great success, but have to say that it took me the better part of a year to get there.

There are many systems availible here, but it all basically boils down to:

Having a faster MA crossing a slower one with maybe a third one that have the General trend intact. Entering in the direction of the main trend on a cross of the faster one with the slower one.

A good one to start of with is the 5/13/62 system, not sure where I got it, but here it is anyway.

I'm with Demark.......I won't send you to a MA system either.

In my opinion......to answer the question "How do Moving Averages in Forex work?": They don't.

Try getting good at spotting support and resistance.

An example:

Let's pretend that 1.3500 is support on the EUR/USD pair. Just because you have that particular number plotted doesn't necessarily mean that it is the EXACT support level. It took me a while to realize that.

Support and Resistance levels aren't exact. They are more like zones. (In the above example it might actually be more like 1.3500-1.3512.)

Remember, that;s just an example......but I think you see what I am getting at.

The less you put on a chart, the better off you will be. I have come to believe that a bunch of indicators do no good, except in the fact it makes me feel safer in a trade. (And all the while I might feel safer, someone out there like Merlin is taking my money. He doesn't know I feel safe, and therefore should be right. lol)

Not all traders use the same indicators, so therefore, you are going to have failed buy signals, etc. If I am using the 50 and 100 EMA, Demark might be using the 20 and 35, for example. So needless to say, we see different things, and as I go long, he may not do anything.....and at that point I can't count on him to help me push up the price. (Simple example, but multiply that by thousands of people and you see why you can't always count on something like that.)

On the other hand, everyone in the world is plotting trend lines, resistance is just a place where a ton of sell orders are. When they get taken out, a lot of the time it will create a vacuum of sorts, rushing price to the next place where there are a stack of sell orders. (Again simple explanation.)

Hi normball;
Moving averages (standard and exponential) - and their kin like regression filters (which incude my favourite, Kalman filters), which remove the lag inherent in averaging filters - work fine in FX. They are very useful in approaches centered on trend analysis, where you think of price movement in terms of trend starts, continuations, and finishes. One of the most useful parts is that they provide a paradigm for visualizing the various short to long term forces in the market, which is quite useful for estimating the strength of changes in market views, as well providing methods of catagorizing the robustness of trends.

Supporting the basic averaging methods are things like Bollinger Bands, which measure deviation from a trend (genrally they are plotted two standard deviations from the trend, and when price is travelling along the side corresponding to the trend itself (eg the upside BB for an upward trend, the downside for a downtrend), it indicates continuation, when it crosses to the other side, the possibility of a reverse is large.

If you can hold of the August issue of the magazine "Technical Analysis of Stocks and Commodities", you'll find a good example of how one trades with multiple moving averages ("Moving Average Trios", by David Penn). Other than that, perhaps the best thing is to get hold of a classic book, like Murphy's "Technical Analysis of the Financial Markets", to get a basic handle on how they work.

That was some useful reading and will take it onboard. Thanks for the help but i think i'll have to try to put it into practice maybe first on a practice account..

Have a good week and hope your making money.

Truer words were never spoken Happy trades!

No matter what route you choose, demo trading is ALWAYS going to be the route to go first.

I couldn't agree more.

My system uses two simple moving (20 and 3 period) averages (no other indicators at all!) but only as a guide. The main deturminator is the price action and how it compares to the MA's. It is also a highly discretionary system, if I were to attempt to use it mechanically I'd go broke in no time flat.

I believe they are the the average of the closing positon on a bar which means that they are not always a good indicator of what the price has been like for the rest of the period.