Tuesday, March 31, 2015

Practical Ways to Use Moving Averages

Moving averages can be used as a tool to:
Identifying a trend
Identifying Support & Resistance levels
Identifying price breakouts
Measuring price momentum
Moving Average can be used easily as a tool to identify an uptrend market when
- The moving average is rising
- The price line tend to be above the moving average
- A shorter moving average crossed the longer moving average
Normally, a longer term map of the trend gives us much reliable perspective for the fact of
what's going on with the market. In order to identify a trend you should take a look at a
longer term chart like Weekly or Daily to see what the major direction of the price is.
Remember that this is very important to make sure you are not on the wrong side of the
market because a large number of big losers easily had too many trades against the major
trend. To identify the longer term trend you can draw 200 SMA and 144 EMA onto the chart.
Simply when the 144 EMA is above the 200 SMA and at the same time the price is above the
200 SMA while both moving averages are diverging.

Now, we have the big picture of the market and we at least know that a LONG trade is not as
risky as a SHORT trade. However, a short term trader needs a short term signal to enter the
market. A short term LONG signal would identify when:
- The 144 EMA crossed the 200 SMA on 4H chart ( you can use 1H chart but it has more
noises than a 4H chart )
- The price must be above the 200 SMA
- The MAs is diverging
- MAs and especially the 144 EMA must be in a rising form (this is a visual experience
and normally helps to avoid noises)

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