If you’re among those traders who turn to them as a confidence builder or as supplementary analysis tools, it’s time to be aware of the fact that moving averages can be your main tool. They can do both things; they take your mind off of your unpredictable fate as a foreign exchange trader, as well as influence you to make firm grounds regarding your trades.
Furthermore, using techniques that involve moving averages in the forex market serves as a reminder that it’s usually fun to trade if you’re less anxious about potential risks. Provided that you use them accordingly, they can take a pile of duties off your hands; no longer will you acquire tools for identifying signals such as incoming trend reversals, weak trends, market inactivity, and support and resistance levels.
# 1 – Crossovers
The technique: determine two moving averages; then, anticipate the movement of one side to another
A plus side of using crossovers is that apart from their simplicity, they grant you a chance to be detached from your emotions. Such a technique doesn’t require you to formulate decisions regarding profitable entry and exit positions or where to place stop orders; your mere task is to observe market activity. Especially if you’re still a novice trader, the technique can drastically improve your odds.
# 2 – Envelopes
The technique: after identifying a percentage rate, plot two points around a single moving average
The envelope technique is known to pinpoint a trend reversal, weak trend, and level of support and resistance after a certain period has been approached. Based on the preferred plot points, you’re more likely to recognize price exhaustion, and therefore, be aware of incoming market behavior.
# 3 – Filters
The technique: after identifying a moving average, don’t give in to the immediate need to enter a trade; wait until it crosses a certain “safe” level
A filter describes any trading technique that increases your confidence about an established entry position. Apart from being used as a secondary strategy, it can validate a trader’s decision regarding his fate in the forex market. It is a means of making sure that false signs are avoided, and that moving averages are valid. Given that you don’t over-rely on one (i.e. wait for “safe” signals too often and too much), it can invite you to a winning trade.