Moving Average indicator (MA)
System: Metatrader 4
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Moving Average (MA) in financial markets is one of the indispensable simple trend indicators. It is the basis of many profitable technical indicators, analysis methods and trading strategies.
What is Moving Average
Moving average is the most famous and oldest indicator that has ever been used in trading in the financial markets. They write that for the first time it was used for calculations during the Second World War. The authors of the Moving Average are Richard Donchian and J. M. Hurst. Today, there are several main types of moving averages that you can find in any trading terminal and analytical program, as well as a lot of filters written according to a similar algorithm or based on a moving average.
Moving Average (MA) follows the price movement. The essence of this forex indicator is to determine the direction of the trend and smooth it. When calculating the moving average, mathematical averaging of the price of any instrument for the selected period is used.
Moving Average Formula
A simple or arithmetic moving average is calculated as the sum of the closing prices of an asset for a certain number of periods or candles (for example, 9 or 26 days) divided by the number of periods.
SMA = SUM (CLOSE (i), N) / N, where:
SUM – sum;
CLOSE (i) — closing price of the current period;
N is the number of calculation periods.
Types of moving averages
The Simple Moving Average is the sum of the closing prices of an instrument for a specified number of single periods, divided by the number of these periods. This is the most basic indicator, which simply calculates the average value for the number of bars, without taking into account the range of the history. Therefore, such a calculation is considered to be delayed.
Corrects the situation of the Exponential Moving Average, which gives more weight to the bars that are closer to the current price. An exponential moving average adds a certain percentage of the current closing price to the previous moving average. The calculation of the smoothed average also gives more weight to the closing price of the market. This is the most popular version of the moving average and is not as retarded or particularly sharp as the WMA.
Linear Weighted Moving Average is the most active indicator of the family. It reacts the fastest to price changes, so it gives a lot of false signals. Traders don’t usually use it.
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Moving Average Options
The period is the most important parameter of the moving average indicator, of any kind. It shows how many bars are taken into account. The higher the value, the smoother the indicator line will be.
Small periods of the moving average are good to use on low timeframes, because. They take into account the “here and now” situation and allow the trader to react quickly. But such a filter can give a lot of false signals. If the period is too long, then it will be very late and display a long history, which may well be out of date. Such an indicator is often used as a long-term support or resistance level.
Most often, moving averages are used in sets that reflect different periods of the market.
The most popular moving average period values are:
For short-term trading – 6, 9, 13, 21, 26;
For medium-term trading – 30, 50, 62;
For long-term trading – 100, 144, 200.
These numbers show the important number of days in a year.
2. Apply to…
Another important parameter that can change the type of moving average is “apply to…” — the opening price, closing price, and other calculated bars. There are many options, but they do not particularly affect the display of the indicator. Perhaps this parameter can play some role in scalping, but it is unlikely in long-term trading. The most popular forex method is “Close”.
How to use Moving average
The moving average is a trend indicator, so MA-based trading strategies are primarily trend-based. Traders come up with different signals, but there are three main ones.
The general direction of the indicator shows the current trend. Depending on the period, the trend is short-term, medium-term or long-term. The moving average is directed upwards – an uptrend, downwards – a down trend, located horizontally – a flat.
Crossing of moving averages with different periods. The signal depends on the moving average with a shorter period: if it crosses the second line from the bottom up, then we have a signal to buy, from top to bottom – to sell.
Moving averages as support and resistance. Above, we said that MAs with long periods are most suitable for this role. The breakout of the line is considered a signal in the direction of the breakout. Here it is important to carefully select the period for the indicator — it can be different for each asset.
And of course, the Moving Average indicator is most often used for technical analysis in conjunction with other indicators and oscillators.
How to install trading indicator:
1. Place order throw the cart and Download the indicator, then unzip the archive. Youl’ll find in the folder .ex4 files
2. Placing them in the MT4 “Indicators” Data Folder
3. Closing and re-starting your MT4 terminal
4. Dragging you indicator from the Navigator to the Forex Chart