Moving average is one of the most popular technical indicators used in Forex trading platforms. It is a lagging indicator that smooths out price fluctuations to help identify potential trend reversals and entry/exit points.
There are different types of moving averages, but the most common ones are simple and exponential moving averages.
A simple moving average (SMA) is calculated by taking the closing prices for a given number of time periods (usually 20), adding them up, and dividing by the number of time periods.
The resulting figure is plotted on a chart as a line or curve that shows how prices have changed over time. An exponential moving average (EMA) gives more weight to recent data points, making it more sensitive to recent price changes than a SMA.
Both SMAs and EMAs can be used to generate buy or sell signals when they cross above or below their respective thresholds.
For example, if an SMA crosses above its 200-day threshold, it could be interpreted as an indication that the long-term trend has turned bullish; conversely, if it crosses below its 200-day threshold, it could be interpreted as an indication that the long-term trend has turned bearish.