Posted by forex at 4:37 AM
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1. Determine the periods for the moving averages. The period of a moving average determines how many prices the moving average takes into account. For example, on a daily chart, a nine-period moving average uses prices from the previous nine days. By default, most moving averages use either the closing or opening prices for each period.
2. Alter the periods as appropriate. Determining the periods are somewhat subjective but space them far enough apart that they give meaningful information. For example, setting periods of 50, 20 and 10 ensures that each moving average will react differently to prices. Experiment with different periods and observe how they fit your price data.
3. Determine the overall trend with the long-period moving average. If the average is sloping up, this indicates a bullish trend. If it is sloping down, this indicates a bearish trend. Look for buying opportunities when the trend is up and selling opportunities when the trend is down.
4. Look for crossovers in the short and medium-period averages. When the short-period average crosses above the medium-period average, it generates a possible buy signal. When it crosses below the medium-period average, it generates a possible sell signal. Alternatively, look for the short and medium-period averages to cross over the long-period average to signify a change in trend and serve as buy-or-sell signals.