How To Use Moving Averages To Trade a Forex Trend

If you are just getting started in the forex market then the first strategy you should try should be trading with the trend.

More often than not indicators can confuse forex noobies. However, when used in the right way they can be a real asset to a trader’s trend following toolbox.

Trend indicators are used for 2 main purposes. The first is to help ascertain when a market direction is changing so as to enable the trader to enter the new trend as quickly as possible. The second reason might be further through a trend to assess whether now is the right time to enter.

A cautionary note here though. A maximum of 3 indicators should be used to aid your trading. Due to the fact that indicators derive their information from differing mathematical calculations, if you have too many on your charts they will end up giving you conflicting signals – actually a worse position to be in than if you never used them at all.

Here is also a YouTube video which gives you the 5 best trend forex indicators and shows you how they can best be used!

The Top 5 Indicators That I Have Found To Trade With The Trend

Indicator #1 – Moving Averages

Simple moving averages can be an excellent aid to tell the trader when a market may be about to change direction and also to tell whether now is a good time to enter in the current trend.

The 2 most commonly used are the 20 and 50 day moving average. If the 50 day is below the 20 day then the market is moving up and if the 50 day is above the 20 day then the market is moving down.

A cross of these 2 on a chart is also a very important signal. The 50 day moving above the 20 day may be a signal that the market is about to move down and a cross with the 50 day moving below the 20 day is a signal that the market is about to move up.

These crosses can represent excellent opportunities for a trader to enter the market to make the most of the upcoming change in a trend. However, the decision to enter should not solely be based on this indicator and other parts of your strategy should confirm what the moving averages are showing.

If the market you are looking at is in the midst of a trend then the 50 and 20 moving averages can act as dynamic support and resistance levels. if we take the example of the downtrend below we can see that the market consistently moved backup to the 20 day moving average throughout the downtrend before heading back down:

In this instance you could used the 20 day moving average as part of your strategy to tell when was a good time to enter the downtrend and profit from a continued move down.

Be aware though, that this does not always apply. Confirmation of this can only be taken when the market has moved back to the moving average and bounced off it at least twice - whether that be an uptrend or a downtrend. This is also why moving averages, and all other indicators for that matter, should form a part of your overall strategy and you should not solely rely on them!

I hope you enjoyed this article - please comment to let me know if you use this indicator and how successfully. Also hit the like button and follow me to let me know what you think and share so I can continue to write.

Thank you in advance....see you next time