How To Properly Use Moving Averages In Forex Trading and Some of Their Properties

Most people want to find that perfect moving average that once the candles have crossed it the market will always move in that direction, well I'm here to tell you that you will not find such a moving average.

The best way to use moving averages to trade with is looking at their elasticity. What I mean is to see how the market or candles move away from the moving average and how they move back. For instance if you image that there is a rubber band attached to the M.A. (moving average) at one end and on the other it is attached to the candles or the market data. First you will see that the rubber band will stretch out as the market moves away from the average and then loosens as the market bounces back.

That idea is simple enough but what you will find is that depending on the currency pair and depending on the time frame there will be an average amount that the rubber band is able to comfortably stretch before returning. Now you need to keep in mind any fundamentals or news announcements can effect the elasticity or your currency pair for a time but should then return to normal.

That average amount will help you to determine over bought and over sold markets using M.A.'s. Interestingly enough the word always is rarely used in Forex trading or even trading in general but the market will always come back to its M.A. given enough time. Time is also another aspect in how markets react to moving averages, for example you will find that this elasticity is also applicable to time and your currency pair will have an average amount of time before it returns. So with finding time and distance averages away from moving averages you will have a great way of viewing the market for reversals.

Now this is not a trading strategy by itself but it is a concept that you can use to look for different trades using common strategies and trading tools.

Another property of M.A.'s is that they tend to have a fair amount of support and resistance to them. All this basically means is that the candles or the market data will bounce off of this area often. Now with M.A.'s you can find these properties no matter what number you pic, you could use some of the those large moving averages such as the 200 ema or even really small M.A.s like the 12 ema. The last aspect of M.A.'s that I wanted to mention is how they portray the trend of the market. The best way to see if the trend is up or down is just to look and see if the candles, market data, are trading above or below the moving average. There is a lot of information out there about how to trade and getting forex educated that you can sift through but remember there is no substitute for practice and back testing.

Happy Trading!