Good day.Today's video lesson relates to the "Forex for Beginners" category and harsh trading pros hardly hear there is something new.The comments I have several times asked about the seemingly banal display Moving Average (moving average).Many beginners do not understand: what kind of moving averages, and with what period of use.In this lesson, I have tried as much as accessible way to explain the principles of work with moving averages when trading forex.
Hello.Today we introduce you to the concept of moving average.This is one of the oldest technical indicators and, perhaps, the most popular and most commonly used as a myriad of other indicators built on its basis.
moving average is nothing else than the average price of a currency pair, the case with Forex - for a certain period of time, expressed in the number of candles and bars.For example, plotted in red moving average with a period of 8.
It shows the average price for the last 8 candles.Naturally, it passes 8 candles, it removes
Thus, we can see the general direction, which looks a bit smoother, more pronounced than the usual schedule.In general, it is assumed that if the price is above the moving average, the trend is up, if below the moving average - mean the trend down.In this period, the higher the moving average, the more longterm trend.For example, with the period of the moving average 21, we can say that if the price is above it, it is enough short-term trend is up.
If the period of the moving average will be much larger, say 200, and the price is above the moving average with a period of 200, we can say that there is a significant trend upward.If the price is below the moving average with a long period (eg, 200), we understand that there is a fairly serious down trend.
In other words, the greater the period of the moving average, the more it is clumsy, since it has to count the average value for the last candle (in this case 200).That's a lot.And, accordingly, the greater the period of the moving average, the more important it is in the long term.
There are several types of moving averages.When you apply the indicator to the chart, you are offered to choose between shift - if, for example, you need to shift the moving average just below or just above, make two moving averages, and thus to build a canal.But usually the shift is rarely used.Then we can choose which part of the candle to apply a moving average, ie the average of which will be calculated.By default, calculates the average closing price, Close.
can make calculated the average opening value, the mid-point High, the highest point of the candle, the lowest point - Low, we can expect the average of the mid-point of candles, etc. In addition, we can choose the color, line thickness, which is..will - dotted or dashed-dot.
There are several types of moving averages .The first - a simple , exponential , smoothed and weighted (linearly weighted, to be exact, but usually just say - weighted).On our chart displayed a simple moving average.Let's put on the chart exponential moving average with a period of less, not 200, and 21 red.For comparison, draw growing moving average of the same period, but blue.So, we have a simple blue, with a period of 21, and the red - exponential with a period of 21. What is the difference?
Exponential average attaches greater importance to the latest data.In our case, it awards descending values from the last bar.
Last bar receives the greatest importance.Further, up to 1 out of 21 bars, is reduced significance exponential average and becomes less sensitive.At last bar is most sensitive and least sensitive at the penultimate and so on, up to the first bar (depending on what you set period).
Simple Moving Average awards equal importance and last bar, and the first.Therefore, the exponential average slightly more responsive to changes that occur on the last bar of the bar graph.And for this reason it is used much more often than the simple moving average.As a rule, for short periods of use exponential moving average.
But for longer periods - 200, 265 - it is possible to use a simple moving average as well as the difference between it and the exponential is negligible.Let's add another moving average, this time weighted with the same period 21, and make it dark green.This weighted average of the same period, 21 as our previous line.She's linearly weighted .
What distinguishes linear-weighted average of the simple exponential ?This, if I may say so, a different version of the exponential moving average.It is somewhat different significance distributes bars, but also attaches special importance to the last bar and awards excellent bars scales.If the exponential average value of the bars decreases more smoothly, then the linear weighted, moving average, bars importance decreases more pronounced, since it confers a different scale bars, n.
If, say, we have the last bar - 4n, penultimate - 2n, the next bar - n, on - n, divided by two.That is, it is sharper, more dependent on price fluctuations.For this reason, it is not very popular, and therefore the linear weighted moving average is used very rarely.
And the last type of calculation that we stayed, - smoothed moving average , Smoothed moving average.It should be noted on the graph gold color.Although, as we see in the golden period smoothed moving average is the same as in the previous ones - a simple, weighted moving average, but smoothed moving average gold looks as if it has a longer period, although periods in all our calculations are the same.
Why is this happening?The smoothed moving average is between simple moving average and exponential.At the same time, if a simple moving average counts each time only a certain period of time, we set (in our case - 21 bar), then smoothed moving average though accounts for the period of time that we have established, but including itIt takes into account the previous bars, which are, as it were outside the period which we set - in this case 21. this moving average of the previous reviews and bars, take them into account, but gives them less and less value to the extent that,they move away from the present moment.Thus, we get a smoother variant, which is suitable for detection of any long-term trends.Accordingly, it is desirable to set a longer period.
It follows that the smoothed moving average automatically increases the time that we put in the settings, and thus is a more fixed, than other types of moving averages.It is used very rarely.In my practice, I have almost never met in order to use it.However, this information may be helpful.
What type of moving average to use?Most often, traders prefer to deal with the exponential moving average, and for longer periods - to use a simple moving average.Of the other species can be forgotten.
be understood that the longer the period, the more fixed average value and the greater it is if the price is still before it has reached and crossed or, for example, was the bottom, and was on.What period should be used in trade?More often - short mean that traders use it 8 and 21. The length of the moving average - 150, 365, 200. Let all of them are plotted.
It must be remembered that the greater period moving average, the less agile, the greater the need to price movement, that it had changed its direction reversed.How can we use moving averages to trade?The classic books on trading often considered the notion of "crossing" - when the fast moving average (eg, 8-th moving average yellow) crossed the red, it means the purchase.
Or conversely, the fast moving average crossed from the top down slow - for example, the 8-th moving average crossed the 21-th moving average.This is a signal to sell.The most common use of the moving average is considered as their intersection.In general, it is believed that such an approach is obsolete.As the market has become less trendy, lots of hype, up and down movement.
And when the lines crossed, then it is often too late to buy or sell, as they follow the price and delayed, ie give a signal when the trend has lost its original strength.And when you buy, the price can move quite a bit, and then comes a turn.Thus, the moving average as a signal to the opening position should not be used.
We can consider it as a kind of confirmation of the finding of the logic of our trend.Suppose we look at the schedule and I think that now the trend.Long gone up, and in some place there was a downward spiral.We look like crossed some time ago, moving averages - and we can say in general that there is a trend downward.
That is, moving average can be used by us as a kind of an additional filter for decision making on the current trend, which is present on the market, and thus to open additional positions on our other signals.We can also use the angle of our line.The more it is steep, the stronger the trend.Accordingly, this moving average is used for a long period, from 20 and above.The higher it is, the steeper the angle of the moving average, the stronger the trend.
As you can see from the chart, the price of some sliding back, and testing them in a way and repelled by them, continuing the old trend.Thus, we can consider moving averages as a kind of dynamic resistance level of support, the dynamic trend lines, constantly following the price.If the signal formed from the moving average with period 89, then we might as well use it as a signal to the input position.
If there is no resonance level nearby, but there is a moving average with a period of more than 20, then we might as well use it as a certain level, and in the presence of an additional signal to assume that the price of it pushed off, and rely on the continuation of a trend thatHe had taken place earlier.
can put stop loss beyond the moving average, and move them to the extent of convergence with the price, you can use moving averages as a kind of signal to exit or close a position.Moving average crossover entry should not use the products, but to leave - completely.If you have a long-term deal, as soon as the moving averages cross with small periods, close the deal, and thus find the end point of the current trend.
Let's say you have sold it, and after 8 and 21 intersect, close the deal and get out of position.If all of a sudden there was a breakdown of the moving average and you do not know, is it a false breakdown or not, the longer the price is above or below the moving average, then the more likely that the trend will change.
For example, if one candle, then the probability is small, and when there is a second, third, fourth outside the moving average, we can assume that, most likely, the trend will change.But here, again, it all depends on the periods of moving averages.As I mentioned, the higher the period is, the more important moving average, the more value it has.
The lesson I did not mention about the formulas used to calculate different types (methods) moving averages.Why?I believe that the ordinary trader, such as you and I, formulas for the construction of the indicator is not as interesting as its purpose and methods of use in trade.After all, not everyone knows how to work the TV or microwave oven, and it does not prevent us from using these devices.If you still need the formulas for all types of moving averages presented in Metatrader 4, you can find them in the program help by pressing F1 inside the terminal.