Exponential Moving Averages – The Only Profitable Forex Indicator
Over the years I have tried every form of forex indicators, every system, every gimmick and found the same results….negative ones. That is until I discovered the use of exponential moving averages (EMA’s) in the forex market. It’s no surprise the use of EMA’s fits so well in price action based day trading. EMA’s are simply a “smoothed” representation of the raw price action. Unlike the standard simple moving averages often used, exponential moving averages apply more weight to the latest or most recent price movement. What does that mean? If you are using a 10 day simple moving average the moving average is the closing price each period, added together, and in this case divided by 10.
With an exponential moving average more weight is applied to the more recent days. In any case, and whatever moving average you are using how can you take advantage of them? Well in short, here are some solid principals to use with moving averages. Many make the mistake of using a simple moving average cross to signal entries and exits, and often times find the same results as they do with any other indicator, often times buying tops and selling bottoms and so avoiding the use of them in this fashion would be a wise choice. However moving averages in the forex market can often times be used as “floating” support and resistance for trades your are currently managing. Over years of trading you will find different moving averages hold more weight than others and knowing what EMA’s to use and the time frame to use them on is key. In our live trading room we implore 3 EMA’s in combination with our price action based forex day trading strategies.
You will find if using the proper moving average that the price will frequently, during the course of a trend, retrace back and move away from a given moving average when used properly. Knowing this is very important, and can be used in combination with support and resistance as entry areas on retracement. As mentioned before each moving average has its place and some are more effective on different time frames, as well as some being more important and respected more frequently on different pairs. The key to exponential moving averages and the way they are used in our live forex trading room more often than not is for trade management. In our live trading room we teach how to profitably trade using moving averages as discussed above. Not only do we implement them in short term trading but also teach how to use them during news releases, as well as using them to place and manage swing trades. If you are interested in learning more about trading with moving averages as well as our other numerous day trading strategies we offer a 14 day trial to our live forex trading room. See you there, until then happy trading!