Which Moving Averages To Use As Best Forex Support and Resistance Indicators

Moving averages can be a fantastic tool to use as dynamic support and resistance…

The advantage they have over static support and resistance levels like trendlines, is that they use an average of recent price levels to form their smooth lines, arguably making them more reactive and, therefore, a better indication of where the price of the market may respect.

Here Is a YouTube Video That Will Take You Step By Step Through How To Analyse A Trend Entry Using Moving Averages As Your Support And Resistance Indicators

 Best Forex Support And ResistanceIndicator To Use To Trade Support And resistance

So, the big question is which ones should you use!?

With so many blogs and tutorials out there suggesting their favourite methods it can be tough to know which is the best one. I want to take a slightly different route and help you to decide using a test strategy on your charts.

Ok, first off, moving averages are most useful in trending markets – that is uptrends or downtrends. Now, they are not completely useless in ranging markets, but as support and resistance levels, trending markets are certainly preferable.

So, you have your market that is in a trend – as you can see from the image below – which is a 4 hourly chart of the NZD/CAD.

We can see that the downtrend has already given use 2 lower highs and we want to try and use our moving averages to enter on the third lower high. Now, what we are going to do is go through the various moving averages to see which ones give us the best indication of resistance.

So the most commonly used ones are:

10 day

20 day

50 day

200 day

What we are looking for is 2 moving averages that, once applied to the chart, the market bounces in the middle of.

So, personally I always start off with the 20 day and 50 day as you can see below.

Now, here we can see that these two are simply too low for this time frame on this pair.

So next I will get rid of the 20 day and add the next moving average, which is the 200 day. This is the step you should follow on any market you are looking at.

So, here we go! Now we can see that our two higher lows have bounced right in the middle of our 50 and 20 day moving averages and so these are the correct ones to use for this situation.

Right, so we are now going to be looking for price to retrace in-between the 50 and 200 day moving averages before we place our trades.

One final point is that you should always have at least 2 points of reference on your charts, no matter which indicator or technical analysis method you are using – I have found that horizontal support and resistance levels work really well with moving average support/resistance.

Here is an example of what this would look like once you have added it to your chart:

So, in actual fact you will not only be looking for the market to retrace in-between your moving averages, but you will also be looking for it to meet one of the horizontal support/resistance levels before placing your trade!

I hope you found this article useful, don’t forget to follow me to be notified of the articles that I am posting and hit the like button to let me know what you think.

Also, feel free to comment below with any questions you might have regarding moving averages as support and resistance indicators!