A moving average is used to determine the intensity and direction of the trend. When the line is more inclined, the current trend is in its predominant state. And the same happens with the opposite tendency. When A moving average is not as pronounced it is an indication that the trend is weaker. An upward curve represents an upward trend, and a downward trend upward (negative).
Many would say that the simplest and easiest thing would be to distinguish the eye of the dominant trend, this can be, but only if you are using a linear or area graphic. When we talk about the Japanese candle chart, the predominant trend is a bit more difficult to identify than a trend using a line chart, especially around the inflection points. The use of a moving average can be very useful to be used as a complement in your own technical analysis.
Spot a trend reversal
The traders that use Technical Analysis as main source of analysis in the market, know and use mobile averages to invest in favor of the change of trend, creating greater possibilities in their favor. It is called crossing when two moving averages intersect generating a point of intersection. A single moving average is not sufficient to predict a change in the trend, that is why two periods (10) or (20) are used, thus creating an intersection option between the two moving averages, which will indicate at the moment If a trend change or current direction of the market intersects, if the trend is bullish it is more likely to change to bearish and if the trend is bearish it is likely to change to bullish. What produces the moving average is greater confidence and support when investing, leaving the trader with greater security when investing.
Set up and apply
Setting up the moving average is easy:
- Click on the ‘Indicators’ button in the bottom left corner of the trade room.
- Choose MA from the list of available instruments.
- Set the required period.
- Repeat the whole procedure for the second line but change its period.
When you use two moving averages together remember to change the color to distinguish them, because sometimes the difference in periods is not enough.
You should know that the combination of the two moving averages will always stay behind the current price, because there is no indicator that goes forward in time to predict the furuto. Because of this, it is better to use the moving averages in a longer time range, which will provide greater certainty of a change in the market, allowing you to be able to obtain greater security and probability from your side.
Changing the period will make the indicator more sensitive. or it will decrease the number of false alarms. You should modify the periods to your liking, leaving the moving averages as best suits you.