All types of **MovingAverage** perform price analysis and random fluctuation filtering to identify stable trends. Due to this, any trading strategy on moving averages will be highly effective in the trending market, both as an independent system, and in combination with other indicators.

Recall: moving average is an **indicator of technical analysis** on the method of calculating the average values of the market price. The situation with respect to moving averages reflect the current psychology of investors: bulls-trade above the border, bears-trample under it. MA are dynamic trend lines that reflect the state of the price balance, where market players make current decisions about buying/selling.

**Trading strategy on moving averages** uses dynamic MA lines as support/resistance lines. This methodology has built many popular indicators such as Bollinger bands (Bollinger bands) or envelope (Envelopes).

## Main types OF mA indicators

**All trading platforms usually have built-in moving averages:**

- EMA (Exponential): the most sensitive, max weight have the latest values. It is used on small periods of weak and medium-volatility assets.
- SMA (Simple): all bars have the same weight during the calculation. For any assets with periods exceeding 50.
- LWMA / WMA(Linear weighted): applies a rigid calculation method based on the absolute values of the last bars.Works mainly used stock assets.
- SMMA (Smoothed): takes into account bars outside the specified period, which, accordingly, increases the calculation period. The most sedentary. It is rarely used in Forex.

**Trading strategy on moving averages can use advanced options:**

- HMA (smoothed Halla): square root averaging. Perfectly shows the points of trend change. You can see here http://dewinforex.com/ru/indikatory-foreks/indikator-hull-moving-average-chestnaia-skolziashchaia-sredniaia.html.
- AMA (Adaptive): method of calculation and the conditions of the average change for different parameters of the price. Effective for financial instruments.
- DEMA (Double) or triple (TEMA) exponential: remove all “false noise” and show the most stable trend.
- Dynamic exponential (VIDYA): the calculation of EMA parameters depends on the current volatility of the asset being traded. The most sensitive option.
- Adaptive Kaufman (PeriodAdaptiveMA): the report is kept from the beginning of each timeframe. Gives the most “correct” price close to the optimal (for example, per day).

## The application of the trade practices

The task of moving averages is to determine the parameters of the trend: direction (movement of the line up/down) and strength (angle of the line). The growth of the” long ” (more than 100 days) MA indicates a long – term upward trend, and the fall-a bearish trend. The greater the angle mA-the stronger the current direction. A decrease in the angle of inclination (i.e. a turn to the horizontal position) means a weakening of the trend.

The MA calculation period depends on the specific trading objectives, as the value of the smoothing length requires a choice between the sensitivity of the indicator and the reliability of the signal.

**Important: the longer the MA period, the longer the trend it analyzes and the more reliable its trading signal will be. Reducing the calculation period increases the impact of price noise and reduces the accuracy, so you can use this MA only for a short period.**

Trading strategy on moving averages uses all types of exchange prices (open/close, max/min, as well as average and weighted average), but most often take the price close – as the most correct for the analysis of history. Line MA shows the natural boundaries of the possible price correction.

**Traditionally, sets of at least three averages are used, each of which is responsible for its own trend:**

- short-term-fast MA, periods from 5 to 34, the most popular 5, 8, 14, 20(21), 25;
- medium-term-average MA, periods from 50 to 100, (50(55), 89, 100);
- long-term-slow MA, periods from 100 and above, (150, 200 and 365).

**Most popular timeframe kits:**

- M15 and less — 5, 8, 13, 20, 34, 50(55) and 144.;
- H1– 8, 20, 34, 50(55), 89 and 144.;
- H4– 8, 13, 21, 50(55), 89 and 144.;
- D1– 8, 13, 21, 50(55), 89 and 200.;
- MN1, W1– 8, 13, 21, 55, 133, 200 365.

In addition, the MA technique can be applied to the data of other indicators (most often – oscillators).

## The main methods of trading strategies on moving averages

It is believed that if the market price is higher than the current MA value, the trend is upward, if lower – downward.

**The method of placing the price relative to the moving line:** a bullish signal appears when the price crosses the MA line (of any type) Downward and then the price goes above MA. Bearish signal-if the crossing occurs over the low And the price then continues to move below the indicator line.

**Example of a breakout trading strategy on moving averages:**

**The method of crossing two (or more) averages**: if the fast MA crosses the slow super – Low – sell signal, if the low-up-buy signal. The construction, when MA(50) goes above MA (200) is called the “Golden cross”, a similar bearish intersection – “death cross”.

**The parameters of the exit on the trading strategy on moving averages:** StopLoss on long positions put on the lowest (Low) price of the last bar before the moment of crossing, for short — on the high price. If before working off TakeProfit or StopLoss there is a new intersection-the position is closed. Stops can be placed behind the MA line and moved after the price.

**Method price bands** instead of a single line on the closing price of build two MA of max and min price. Upper: trend line in a down market, lower – in a growing market. Market entry – when the price crosses the indicator lines.

**According to this scheme works the famous trading system Sidus:**

**The percentage of the envelope:** on the chart, there are three MA: the main line is above/below the fundamental, at a percentage distance. Enter the purchase, if the price crosses the upper line from the bottom, or open a sale, if the price breaks the lower line from the bottom. With a fairly wide price channel, you can also trade on the rebound from the borders inside the channel.

*An example of a trading strategy on moving averages using several Bollinger indicators:*

**Important: for any market it is much more difficult to break above the falling MA line than to break through the growing moving average. This means that when the average is broken, the new dynamic support is always stronger than the resistance.**

Be sure to check how the selected MA behave on the price chart of a period larger than the one on which you plan to open transactions. For example, to trade internally using EMA(20) and EMA(50), trend monitoring should be done on the D1 chart. This, for example, helps to avoid entry before the correction is complete.

**And as a conclusion …**

MA tracking indicators are effective only in the trending market. Today it is believed that the concept of the moment of crossing the fast/slow MA as a trading signal is somewhat outdated – the current market is becoming too volatile and generally more dependent on fundamental events.

Due to the characteristic lag, any trading strategy on moving averages does not provide entry strictly at the beginning of the trend and exit at the end, but it gives the opportunity to trade in the direction of the most stable movement. Therefore, it is the options of combined strategies with oscillators or other trend indicators that will help to filter out “false” signals, compensate for the lag from the current price and reduce the risk of losses.