This simple indicator is very much underestimated by traders, a lot of new forex traders will have tried just about every indicator including moving averages and will have discarded them completely after they have been convinced that pure price action is the way ahead.
Using Moving Averages For Forex Trading.
The problem most have with any indicators is that they just focus on the indicator and forget about price action, and then when it doesn’t work, they dump them in favour of a clean chart free of all indicators. The main underlying reason for the failure of traders using moving average is basically the same problem as they have with most strategies, they use a too small a timeframe. Look at anything lower than a 4 hr chart you will see that most of the time a couple of moving averages will just criss cross in ranges and then when the trend starts you don’t get a setup to get into your trade. If you use the daily chart and place a 21 day moving average on it, you will see that the price will follow it for quite a long period of time, and this is what you should use as the basis of your trading.
How Long You Should Leave A Forex Trade On For.
Using the daily chart as a foundation for your trading strategy does not mean that you will have long term trades lasting weeks. Using the daily chart though will give you a clear indication of the direction of the current trend, anything less than the daily chart will contain a lot of candles where the price has not much action. The Asian session is usually very quiet but especially the couple of hours just before it, these times are of no help to analyse the market consisting mostly of random ranges. This is removed in practice on the daily charts since the whole day is included in each candle which gives you a much clearer picture of where the forex market is heading. You will have easily realised that as you go up the timeframes that the charts are much smoother and become more predicable but there is a big step when you get up to the daily chart. Not only is it the biggest step in time from the usual charts that are used being a 6 fold increase in the space of time, but when you include the fact that all the slow periods are blended into the chart also, it gives you a much stronger perspective on what the forex market is doing.