Congratulations on making it to the 5th grade! Each time you make it to the next grade you continue to add more and more tools to your trader’s technical analysis (TA) toolbox. “What’s a trader’s toolbox?” you ask. Simple! Let’s compare trading to building a house. You wouldn’t use a hammer on a screw, right?…
There are many types of moving averages. The two most common types are a simple moving average and an exponential moving average. Simple moving averages are the simplest form of moving averages, but they are susceptible to spikes. Exponential moving averages put more weight on recent prices, which means they place more emphasis on what traders are doing…
The Guppy Multiple Moving Average (GMMA) indicator provides an interesting approach using moving average ribbons. As a trend trader, it’s not enough to just identify the direction of a trend and catch the trend. Trend trading success depends not only properly identifying the trend direction and catching the trend after it has started, but also on getting out as soon as possible after the trend has reversed….
What is a moving average ribbon? A moving average ribbon is a series of moving averages of different lengths plotted on a chart. The basic idea behind the concept of “moving average ribbons” is that instead of using one or two moving averages on a chart, you are using a bunch of moving averages, usually between 6 to 16 moving…
What are moving average envelopes? Let’s rewind and briefly talk about moving averages first. The goal of using moving averages is to identify trend changes. While moving averages are a useful tool to have in your technical analysis toolbox, they can be susceptible to providing false signals. Like you’ve learned in previous lessons on moving averages, a simple…
Another way to use moving averages is to use them as dynamic support and resistance levels. We like to call it dynamic because it’s not like your traditional horizontal support and resistance lines. They are constantly changing depending on recent price action. There are many forex traders out there who look at these moving averages as key support or…
So far, you have learned how to determine the trend by plotting some moving averages on your charts. You should also know that moving averages can help you determine when a trend is about to end and reverse. As trend traders, you want to recognize and ride the trend for as long as possible. You have…
One sweet way to use moving averages is to help you determine the trend. The simplest way is to just plot a single moving average on the chart. When price action tends to stay above the moving average, it signals that price is in a general UPTREND. If price action tends to stay below the moving average, then it indicates…
By now, you’re probably asking yourself, which is better? The simple or the exponential moving average? First, let’s start with the exponential moving average. When you want a moving average that will respond to the price action rather quickly, then a short period EMA is the best way to go. These can help you…
As we said in the previous lesson, simple moving averages can be distorted by spikes. We’ll start with an example. Let’s say we plot a 5-period SMA on the daily chart of EUR/USD. The closing prices for the last 5 days are as follows: Day 1: 1.3172 Day 2: 1.3231 Day 3: 1.3164 Day 4:…