The 50 day simple moving average is generally used by fund managers to discover if stocks are trending up or down. The 200 day simple moving average is yet another favorite indicator. It is often employed by market analysts to determine when the stock market index is in the long term up trend or even a long term downtrend. The simple moving average is just not used very often for temporary market swings.
The second most popular indication for trading currency futures and also other quick moving markets is the exponential moving average. There is a big difference between the simple moving average plus the exponential moving average. The simple moving average gives equal weight to any or all prices while the exponential moving average puts substantially excess weight on the more recent price. This makes the exponential transferring average more dynamic and better fitted to short term price swings. You can see in this example how the exponential moving average reacts to price quicker as opposed to simple moving average.
The moving average is amongst the oldest and most often used indicators for trend following areas. As we previously discussed there are various kinds of moving average and moreover other ways to use moving averages. The simple moving average is the standard type of moving average. The sole purpose is to add each of the prices within a specified range and divide them from the same number. This creates an incredibly balanced average of moving prices through the board.
After testing dozens of combinations I discovered that using the 18 bar with the intermediate term EMA and using the 9 bar for the temporary EMA produced the most consistent results through the currency sector for swing trading currency futures contracts together with cash currency contracts. (Forex)
You can see in this example how the short term trend resolves in the direction of the short term trend. The temporary EMA crosses above the intermediate term EMA plus the market rallies strongly in exactly the same direction moving quickly upwards.
In this example you will observe how the intermediate trend is moving downwards plus the short term EMA crosses along and begins accelerating down quicker as opposed to intermediate term EMA; notice how the market begins moving down rather quickly after the crossover takes place. Waiting for the first bar to trade completely below both moving average are the initial buy signal. Notice the time the dual moving average kept you within the trade without crossing back up. It takes patience to stay available in the market this long but it's worth it finally.
The two exponential moving average sounds challenging, but it's just another way of using two EMA's of different length together concurrently. One EMA measures the intermediate trend plus the other EMA measures the temporary trend. When the short term trend crosses above the longer term trend, it signals that the temporary direction of the market plus the intermediate direction of the market are relocating the same direction, this gives a long entry opportunity.
Currency contracts respond well for you to trend following indicators. The EMA is amongst the best indicators for trading currency futures together with cash contracts. Because the EMA is extremely responsive to short term price swings, using EMA crossovers tend for you to capture the quick changes for a while and intermediate direction of the trend.
The 18 day or bar plus the 9 day or bar EMA's happen to be back tested on several currencies during the last 20 years to produce the most effective results for short term and also swing trading these markets.
And finally, to find the minimum break fluctuations for different currency contracts watch the video I posted. It will explain how to search for the minimum tick fluctuations to enable you to multiply that number by the ticks to know exactly how much money has been made or lost on the position.