How to Use the Moving Average Indicator?

Moving Average Indicator

The Moving Average Indicator (MAI) is one of the most commonly used statistical indicators to help traders determine the direction and momentum of the market. Many traders swear by the use of moving averages as an aid to profitable trading. So what does moving averages mean in stocks?

Basically, the meaning

Trading with moving averages basically means that you trade with the moving averages as part of your swing trades. For instance: 

  • If you are invested in a trade and the MA indicator is moving up, you buy before the moving average line is broken. 
  • If, on the other hand, the moving averages are breaking down, you sell.

How it is used

So now that we know what a MA means in terms of usage, let’s discuss how they are used. The MA indicator itself can be used as a technical indicator to identify a trend. This is usually done when analyzing a simple moving average, such as: 

  • SMA;
  • MACD. 

Simply put, the moving average tells you when the current stock price is higher than the average that is being charted. Conversely, when the stock price is lower than the moving average line, you sell. Trading with moving averages is similar to trading with price action, but instead of trading with the overall value of the security, you focus on the short-term trend.

Best ways to use MA indicator

There is some controversy, however, as to how well this technique works. Some experts claim that the best way to use moving averages is in conjunction with another trading technique known as momentum trading. What do we mean by this? 

In essence, you would want to trade on trends where the volatility is high, as opposed to low. Think about baseball and the difference between a two-year career from average to great. Volatility can help you make better trading decisions but using moving averages together with momentum trading can give you an advantage that can lead to profitable trades.

What you can find with indicator

If you are just learning to trade Forex, you should first take a look at using the moving averages indicator. You can find numerous: 

  • Articles; 
  • Reviews; 
  • Charts; 
  • Videos that will show you how to use it effectively. 

One thing that many people fail to realize, though, is that you can use moving averages together with other indicators, which can really increase your effectiveness. For example, if you want to know when to enter a long position, you can combine it with the moving average indicator.

Technical usage

If you are a technical trader, you may be wondering how you can use the moving average indicator to your benefit. In fact, it is very easy to incorporate it into your trading system. If you decide to use it to identify a certain stock that you want to get in on, you simply set the moving average value to have it trigger when the value of that stock is rising. Then, when the value of that stock is falling, you can sell your shares and close out your position.

Rise and fall of stock

If you decide to use the moving average indicator to predict what direction a stock will move in, you can set it to trigger when the stock is rising or falling. Of course, you should be sure to always have the market data before you make any predictions, as well. Some people claim that using the moving averages to their advantage is just too good to pass up. They say that they can predict where the price of a stock will go practically an unlimited number of times, especially if they have the right kind of software program. If you don’t feel confident about investing your money in the stock market, though, you should stick with traditional methods instead.

Verdict

You can get moving averages from anywhere online. There are some great free moving average indicator services that you can use, as well. One thing you should remember, though, is that they won’t be able to provide you with any kind of charting functionality. If you want to know how to use the moving average indicator to make reliable predictions about what direction a stock is moving, you’ll probably need to invest in a piece of software that provides the functionality that you want.

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