Effective Ways To Use The Moving Averages Indicator

The moving average indicator as we know it is one of the most widely used technical indicators in Forex trading. Primarily used for determining Forex market trends, the moving average indicator is also used in a number of other technical analysis applications.

The popularity of this MT4 indicator comes due to its simplicity. Because the mathematical calculations behind the moving average are so easy to understand, traders at all levels find it a very comfortable indicator to start Forex trading with.

When one talks about moving averages, perhaps one of the first things that come to mind is the moving average crossover strategy.

Yet, besides this and a few other applications of the moving averages in other strategies, this versatile indicator can be used in many other ways.

In this article, we will outline a few ways you could use the moving average.

An important thing to note is that the moving average is merely a reflection of the average price.

As a result, some FX traders might find that the moving average is lagging. This is indeed true. Moving averages show you the average price of the instrument over a period of time. Thus, they tend to reflect the trends in the past, rather than predict Forex market trends. Understanding this is crucial when it comes to getting one’s expectations right with this MT4 indicator.

Dynamic Support and Resistance Levels

The moving average indicator is a versatile indicator in identifying dynamic support and resistance levels. Of course, this is a bit subjective.

Typically, the 200 and 50-day moving averages are commonly used on the daily chart time frame. Because these indicators are so widely used, they tend to act as dynamic support and resistance levels.

(Click on image to enlarge)

Support and Resistance Levels

 

MA Support and Resistance

For example, the chart above shows an instrument on the daily timeframe. You can see how the indicator tends to act as support and resistance for the prices.

You could, of course, make use of a moving average of any other lookback period or on any timeframe of your choosing. However, the most commonly used moving averages are better at acting as dynamic support and resistance levels.

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