The Magic of Moving Averages in SigmaForex

Perhaps, the first indicator you’ve seen and used when you first started to trade Forex was Moving Average. For me it was that. Moving averages come in several forms — simple, weighted, exponential, smoothed, etc. And they present the most basic way to measure the current trend direction and to spot its change. At a first glance simple moving average indicator looks like a miraculous tool that is easy to use and can tell you where to enter a position and where to exit one. Let’s try to understand this indicator — is it really as good as it seems?

What moving average shows? No matter if it’s a simple, exponential or any other form of MA the only thing it’s showing is the average rate of the currency pair over a certain period of time, hence the name. For example, MA with a period set to 7 on a daily chart for any given bar will show the average price over the previous 7 bars (days). That’s not a magic, right? Various forms of moving average just influence the way to calculate the average value (to make the line look more smooth or sharp, or to throw out spikes), but in the end we get the averages of the previous periods.

So what happens when the current price crosses MA? Faster MA crosses slower MA? 3 MAs cross each other? The cross of the MA and a price or other MA (or any amount of other MAs) is usually considered as the buy/sell signal or at least a partial signal. Why? Because they really show a change in the trend. The problem is that the change could have happened long ago (up to the MA’s period bars ago). When the moving average is crossed by the price chart from below that simply means the current price became higher than the average price for the last N bars (where N is the period of MA) — that’s it and nothing else. If MA with a period of 7 days crosses MA with a period of 14 days from below that means that the average price in the last 7 days is higher than the average price during the last 14 days (the actual trend change here could happen up to 14 days ago). Some strategies employ even 5 moving averages cross — that won’t change the fact that the only thing you’ll know when such cross occurs is the ratio of the average price over 5 different periods.

So is there any point to use moving average? Yes, I think that the moving average is a good indicator, but not as a signal producer or a trend change indicator. What does it do best? It indicates the average price. So, it’s better to use it when you want to know the average price over a certain period. You can compare current price to the moving average to consider overbought/oversold state, measure the volatility comparing the price action with the large-period MAs, use the long-term moving averages as the support and resistance levels (because so many traders and even institutional traders use it in this way), etc.

Maybe that’s not a pleasant thing to know if you base your trading strategy on moving averages’ crosses, but the facts don’t lie and with more trading experience it becomes clear that moving averages can’t do magic and shouldn’t be used as an easy way to create another Forex strategy.

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SigmaForex | 3 Advantages of the Long-Term Forex Trading

As a long-standing supporter and practitioner of the long-term Forex trading it's hard for me judge this style of trading objectively, but pointing out the advantages is an easy task in this case. Apart from the obvious subjective advantages that are appealing to the certain features of the trader's character, long-term Forex trading has some features that are good for everyone:

1. Spread economy.
If you trade on the long-term periods you tend to get more than 100-200 pips from every position, if you trade on the short-term periods your trades will rarely go beyond 50 pips in profit. Assume a broker with 2 pips spread and you make 2,000 pips a month with it (more optimism!). With 10 profitable trades yielding 200 pips each you get 2,000 pips of profit minus 20 pips paid in spread to your broker — that's 1 percent. With 100 trades yielding 20 pips each you get 2,000 pips minus 200 pips left to broker in spreads — that's 10 percent.
2. Resistance to the short-term volatility.
Long-term Forex traders don't have to worry about stop-hunting or the intraday spikes. Their positions are safe from the usual daily market volatility. If you trade long-term you always have enough time to change your position's parameters when something important happens.
3. Long-term trading is simple.
To trade successfully on the long time periods you have to forecast the general trend and the possible exit points and on the long-term charts that's not a difficult thing to do usually. And since you trade rarely you won't need to make the decisions too often, while in short-term trading you have to develop the complex strategies to succeed.

I can't make you switch to the long-term Forex trading if you don't like it and the majority of the traders enjoy the short-term trading, but now at least you know the advantages of the other trading style. If you experience difficulties trading inside the day you could always switch to the long-term trading.

Sigma Forex is leading European professional online trading Brokers registered in the Switzerland and most of the EU countries. It was founded by professional private investors including (banks, traders, brokers, and software developers), which enabled Sigma to identify the essential needs of the Forex participants from the start.

Since 2003, Sigma’s aim has been to provide the best, powerful and most suitable currency trading technology along with superiority in execution, competitive services, and dependable customer service. Over the past years, Sigma has quickly become one of the world’s leading online retail currency trading institutions, providing integrated global trading systems, analysis techniques and the most reliable and sophisticated online trading software. We offer internet trading through Meta Trader. This trading platform is very stable and reliable. It is highly regarded and very popular among traders.