The majority of Forex traders tend to open and close a position within one day and gain regular daily profits. But such kind of speculation requires special skills — one must be capable of evaluating the profitability of each trading opportunity instantly, excessive hesitation may cost money. How can one cope with that?
We’ve got a reliable instrument for you — moving averages — which will help you to pick up a major trend from minor fluctuations and take lucrative trading decisions within a few minutes. As you’ve probably guessed, this technical indicator is intended at calculating an average price of an asset chosen within a period specified. One has an opportunity to customize this period based on his personal strategy and needs. This indicator is shown as a line — if the current value of an asset is above this line, it is a signal that it is currently growing and it is a good time to sell this asset. The opposite situation is a signal for a purchase.
In addition to simple moving average, which is calculated by adding the closing cost of a stock or another instrument at the end of each time period (for example, a day) and dividing them by the number of such periods, there are advanced types. For example, exponential MA supposes more weight to the data on more recent periods, smoothed MA allows to sort out minor price changes, while adaptive one helps to differentiate strong trends from volatility.
Then, how to choose the best moving average for intraday trading? If you are a beginner, it is safer to rely on expert opinion.
First, we advise you to start from EMA, as they are more sensitive to more recent changes and are quick to adjust to them. So, if you are trading within a 15-minute frame, opt for 20 EMA. It is a versatile choice for any asset and market situation. Still, it is especially effective in highly volatile conditions. As for a 1-hour period, you can also utilize 50 EMA to see the long-term progress of the price.
In the end, we would like to give you one more tip — do not rely on this indicator solely, turn on others as well, for example, relative strength index, and make a well-weighted decision.