Posted by forex at 8:32 AM
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1. Plot a 50-day and 200-day moving average (DMA) on your charting software. If you are using MetaTrader 4, which is probably the most commonly used forex trading software, you will go to 'Insert' then to 'Indicators' then to 'Custom' and click on 'Moving Averages.' Then click on 'Inputs' and type 50 into the 'MA Period Value.' Do the same thing for the 200-day moving average. These are the two most common averages that traders look at.
2. Wait for the forex market to trade above the 200 DMA. This is the primary level of support that you will be looking at. When the market is trading above this average the market is bullish (it wants to go up). When it is below this average it is bearish (price wants to go down).
3. Once the price opens and closes above the 200-day moving average it then becomes support. What this means is that once the price moves up and drops down to the 200 DMA it will generally have a difficult time penetrating it. Which means that this is a good place to purchase the forex pair. You can then place your stop-loss about 10 to 20 pips below the DMA, so if you are wrong you won't lose much.
4. Use the 50-day moving average as secondary support. Once the market opens and closes above the 50 DMA it becomes support. Use it the same way as you use the 200 DMA.