Moving Average - Explained

What is Moving Average?

Moving average is a commonly used technical analysis tool developed by simple mathematics. 

Who uses Moving Average?

Many investors and traders use moving average to predict accurate trends in equities, commodities, currencies, and ETC...  

Why use Moving Average?

When trading on capital markets where there is high market volatility traders might not be able to focus on the average price trend for the particular trading instrument (currency pair, Equity, Commodity). Moving average enables the possibility to trader to keep track of the Average price of the instrument for a particular time interval.                                               

Image - Moving Average on EURUSD 1 hour chart in 

Meta Trader 4 (MT4) platform

By simple Mathematics

Moving average takes the prices for a time interval which you can select. 
Moving Average on 

Example:  Imagine a scenario when you choose time interval as 5 (This could be any interval such as day, hour or anything. Your platform automatically recalculate when you switch time frame) 

(Day1 Closing Price + Day2 Closing Price + Day3 Closing Price + Day4 Closing Price + Day5 Closing Price)/ Number of days

Average Price for five days

As you can see in the above figure it's taking the average price. So what's special is moving average moves with the time. When the trading ticks move five mins by five mins and hours by hours it moves.

If you are using Meta Trade 4 (MT4) Platform here is how to use 

Step 1

Follow the navigation: Insert - Indicators - Trend - Moving Average as shown bellow figure 1.1

Figure 1.1

Step 2

After that, you will get a pop-up window as shown in the bellow figure 1.2 and this is where the magic happens. If you seeing the bellow figure 1.2 you can see a highlighted field named period (which is having a default value of 14) you can change this according to your preference. If you are trading on low time frames such as 5Mins, 15 Mins & 30Mins in Forex markets, I do recommend to use high time interval (Period) at the same time if you are trading on longer time frames such as 1Hour, 4Hour & Daily time frames I do recommend to use low time frames (depending on market volatility) 

Figure 1.2

If you are using DirectFN TWS/Pro/DT Platform globally here it is how to use

Step 1

Open DirectFN Trader Workstation (TWS), Pro, or Dealer Terminal (version 5) installed on your PC. After entering your user name and password load watch list according to your preferences. Right-click on a symbol you like to test Moving Average as shown in figure 1.3 and click on Pro Chart.

Figure 1.3 - DirectFN Trader Workstation version 10

Step 2

I'm choosing DIAL.N0000 which is listed on the Colombo Stock Exchange, Right-click on the chart, and follow navigation: Indicators - Average - Moving Average as shown in the bellow figure 1.4.

Figure 1.4 - Navigation Right Click on the Chart - Indicators - Average - Moving Average

Step 3

After clicking on Moving Average you will get a pop-up window as shown in the bellow figure 1.5. In the parameters tab, you will be able to see Time Period as highlighted in the bellow figure 1.5. You can change according to your preferences. My recommendation is to use a high time interval/period when trading in the Colombo Stock Exchange due to complicated price changes and due to very low volatility.

 Figure 1.5