Forex moving averages, Fibonacci levels

Forex moving averages, Fibonacci levels

In modern trading, mathematical algorithms are widely used to control the market situation. Providing objective information about the state of the market, they provide an opportunity to conclude profitable deals and increase your Deposit.

In the course of their work Forex indicators show trading signals, based on the situations prevailing in the market. According to the method of operation, they are divided into oscillators and moving averages.

Complex models of several indicators that operate on a single program and can enter into transactions on the basis of independently collected information are called trading advisors, and when used correctly, they significantly increase the trader’s profit. Description of the methods of operation and functioning of trading robots is in a separate section.

Types of moving averages

Three main types of moving averages are used in currency market analysis: simple, weighted and exponential. Each of them has its own peculiarities of using and displaying data. For example, a simple moving average on a half-hour chart with a period of 5 will be displayed as the sum of all market price closes for five periods divided by 5.

Simple moving average

A simple moving average is a set of price values taken for all periods and divided by the number of periods of the indicator.

The period value affects the curvature of the line. Some clients and investors of the Forex market use moving averages for technical analysis, replacing them with trend lines. A special effect is achieved by using such lines together with oscillators.

Based on the figure above, the moving average is smoother than the original price chart. Forex trading involves the use of a moving average with a specified closing price of the period. This can be months, weeks, days, hours, or any other user-defined unit of measure.

The capabilities of modern trading platforms allow you to build a moving average at open, close, low or high prices. In technical analysis using this type of indicator it is necessary to remember that it is lagging behind. The moving average gives a signal not before the beginning of the price movement, but upon its passing.

Weighted moving average

The sample of the moving average presented on the chart below belongs to the weighted type and is quite popular among traders.

This moving average is calculated using the latest prices. The example shows a four-period moving average. To calculate the values correctly, multiply the last price by 4, the price index of the previous period-by 3, the price that arose two periods ago-by 2, and the price index of the long period is multiplied by 1, leaving the current form. The resulting number must be divided by the sum of the multipliers, in this case it is 9.

Exponential moving average

The exponential moving average, as shown in the following figure, is quite complex to calculate and is only used by experienced Forex investors.

Analysis with its use gives different weight to different periods, taking into account the previous price fluctuations of the currency.

Trading signals of moving averages

Using moving averages as a time or price filter is very popular during currency trading. The use of such indicators as a price filter gives the trader the opportunity to choose from the total flow of the necessary indicators or the price of the average day.

A good option would be to use multiple moving averages on a single chart for improved market coverage.

Investors often use a set of moving averages, as it increases the profitability of their future transactions. A large number of trading signals received in this case covers periods of short, medium and high duration. In trading, popular sets of indicators with a period of 4, 9 and 18 days, as well as 5.20 and 60 days.

In fact, if the trading strategy is not based on a certain combination of moving averages, it is allowed to use any set of indicators that meet the requirements.

The period values of each indicator should be sufficiently different to avoid false signals.

This figure illustrates the popular trading situation arising in the Forex market.

If the short-term indicator intersects with the long-term one from the bottom up, a buy signal appears. Similarly, if the short-term indicator crosses the long-term from top to bottom, it is necessary to conclude a sale transaction.

Fibonacci level

Technical analysis based on forecasting the levels of rebound from the main market movements is called Fibonacci analysis. The theory of the same name was named after the Italian scientist and mathematician Leonardo Fibonacci, who lived in Pisa in the late 12th century.

The numerical series, compiled by him, had a set of distinctive features and was also named after him.

According to this theory, there is an infinite number of numbers 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, 2584, 4181, and so on. Each previous number in this row is 0, 618 from the next, and each next-1, 618 from the previous is similar. This indicator is called the Golden section or Fibonacci number.

In nature, there are many objects whose proportions are described by the concept of the Golden section.

Forex trading also involves the use of Fibonacci numbers to predict the level of price movement and the correct placement of stop orders. Waiting for a correction of 61.8% of the main trend, the investor can place his orders below this level.

Thus, he will limit his risk and save the Deposit from financial loss in the event of a trend reversal. If this level of rollback is located near a strong support, the probability of an accurate forecast will also increase.