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§5.5 Moving Average indicator or MA

It is the simplest indicator which consists of one line only. You can find it in many interfaces designed for traders. A line plotted directly onto the chart shows an average price value at each moment of time. What does this mean?  For example, if a maximum hourly value is 1.5 and a minimum hourly value is 1.3 then a MA indicator’s line will pass through a 1.4 point because it is just an average value. The MA indicator’s line is always close to a price line, however they can intersect. It is just a trading signal.

  • If a price line crosses above the MA line then it signals that the price is more likely to rise.
  • If a price line crosses below the MA line then it signals that a price is more likely to decline in the near future.

There are several kinds of moving averages lines which differ from each other by a certain mathematical formula that is used to calculate values.

Another most popular method of using the MA indicator is plotting the following two lines on a chart at once – fast MA and slow MA. In this case you should look at how they intersect with each other. If a fast MA crosses above a slow MA then you should expect higher prices and if it crosses it below then you should expect lower prices.

“Fast MA” represents a price line shifted a bit forward and “slow MA” is a price line shifted a bit backward. When these lines intersect with each other it reflects basic market trends very well.

It is important to look at the general direction of these lines. For example, if they are both directed upwards it means that an uptrend currently prevails in the market. Therefore, the forecasts for rise in prices will be the most accurate.

As mentioned, it is very important to enter accurate parameters into every indicator and the MA indicator is no exception. These parameters are numbers from the formula that is used to calculate the MA value. Unfortunately, there are no universal parameters and the only way to match them is to monitor how accurate the forecasts were, that were made by the indicator with one or another parameter. Such investigation is time consuming but is the only way that has a high probability of getting a payout by trading Binary Options.

The second version of a trading strategy

Based on the data of even a simple indicator you can create a good trading strategy. Its principles are the following:

    • Only trade if the
  • Only trade if the fast and slow MAs intersect (or if a MA line crosses a price line if you select the first version of this indicator).
  • Trades are made at times when your underlying asset is the most volatile (for example, European session for the euro and 4-6 p.m. for the pound)
  • The MA indicator’s signals must be confirmed by another indicator’s signals (you can select it from the list below), breakout of a strong resistance or support line, formation of a candle pattern, etc.

This is a type of basic trading strategy. You will be able to develop your strategy into a more complex one as you trade more and gain experience. If you don’t already have any trading strategy then you can begin with this one and modify it as you need.

Even if you start trading using a simple trading strategy then you will gain much experience and win but you should first discipline yourself not to depart from your own rules. This is what makes a good trader over time.

§5.6 MACD indicator→