In order to make a trade decision in any financial asset, you first need to know the direction of the asset, meaning the trend. The Moving Average indicator allows the traders who manage money to see the related asset trend and it also determines the most important support/ resistance levels inside the current trend.
The Moving Average which can rule the related asset in technical terms with only one indicator allows the trend expectations to be seen clearly, especially before the trade decision on the condition that more than one indicator is used as a general rule for all the indicators.
To access the Moving Average indicator from the MetaTrader platform, you can respectively click on ToolBar, Insert, Indicators, and finally, on Trend.
While uploading the indicator in the platform, the sections of Period, MA Method, and Apply To are included and each section has a critical importance for the shaping of the expectations regarding the related asset.
The Period section represents 14 for the indicator as to the standard. In this section, the number of prices the averages of which will be taken must be written. These numbers can be universal numbers such as 20, 50, 100, 200, or Fibonacci numbers such as 21,34,55,89,144 and 233, or other random numbers. What you need to know here is, no matter what the number is, the related indicator shows the trend expectation in the maximum and the most sensitive way to the traders.
The MA Method section is the type of average from which the price will be taken as well as the number in the period section. It is divided into four categories as; Moving Average, Simple, Exponential, Smoothed, and Linear Weighted. The trader chooses 4 moving average types as much as the number ranked in the period section and it is then formalized. The main reason why these types differ from each other is explained as the difference of the calculations that are included in the averages.
The Apply To section is calculated with the method preferred in the MA Method section. The average number of the related prices in the period section is taken. The most essential characteristic of the Apply To section is the freedom to choose the relevant asset price type. As the standard, the averages are formalized with taking the closing price as the base. However, there are a lot of options such as the opening price, the highest price, the lowest price, the median price as well as the closing price.
***Important Note: Period, MA Method, and Apply To sections differ according to the financial asset that is subject to trade and the time period considered for the trade. For instance, while the 100-period Exponential Moving Average is successful on the daily chart in the USDJPY parity, it is not right to expect the same success on the 1-hour or daily chart. Or, while the 100-Period Exponential Moving Average is successful in the 4-hour chart in USDJPY parity, it shouldn’t be expected to see the same success in the EURJPY parity in the 4-hour chart.
The Interpretation of the Moving Average;
After choosing the Period, MA Method, and Apply To sections, the expectations are analyzed regarding the uptrend or downtrend outlook of the related indicator after the financial asset that is to be traded is added in the graph. How the indicator supports the current trend is very important in this process, especially for the possible revisions in the Period, MA Method, and Apply To sections. With creating the most harmonious view for the graph, the strategy on the trade is decided.
The graph shared above represents a moving average view created with extracanonical numbers in the USDJPY parity daily chart. The 110-Day Simple Moving Average takes efficient steps in the upward trend with the vertical lines in the time frames stated. Especially the returns made from the moving average line or its vicinity are supportive in minimizing the risk in the continuity of the trend and the investment decision.
The graph shared above represents a moving average view created with extracanonical numbers in the USDJPY parity daily chart. The 110-Day Simple Moving Average takes efficient steps in the upward trend with the vertical lines in the time frames stated. Especially the returns made from the moving average line or its vicinity can be said to be very supportive in minimizing the risk in the continuity of the trend and the investment decision.
***Critical Note 2: Moving Average is a significant indicator for the following up of the trend and it paved the way for tens of thousands of different indicators. Indicators traders follow the most such as primarily Relative Strength Index, Bollinger Bands, and Ichimoku Kinko Hyo are created from the formulation variations of the Moving Average technique. Thus, while making a trade arrangement, the Moving Average indicator enables us to move away from the disorder and interpret the expectation regarding a financial asset more easily with a simplistic view.