Moving averages in Forex are statistical tools used by traders to analyze price movements over a certain period of time. They are called “moving” because they continually update as new data comes in, providing a dynamic and updated view of market trends.
Moving averages can be used in various ways in Forex trading:
Trend Identification: If the price is above the moving average, it indicates an uptrend, and if it’s below, it indicates a downtrend.
Support and Resistance Levels: Moving averages can act as dynamic support and resistance levels.
Trading Signals: Some traders use the crossover of two moving averages (one short-term, one long-term) as a trading signal. A bullish signal is given when the short-term average crosses above the long-term average, and a bearish signal is given when it crosses below.
Remember, while moving averages can be a helpful tool in your trading strategy, they should not be used in isolation. Always consider other factors and indicators when making trading decisions.
Understanding Moving Averages
What are the 4 major moving averages?
In the realm of technical analysis, there are four major types of moving averages that traders often use. Each one has its own unique characteristics and uses:
1. Simple Moving Average (SMA): The SMA is the most basic type of moving average. It’s calculated by adding up the closing prices for a certain number of periods and then dividing by that number of periods. The SMA gives equal weight to all data points, which makes it less responsive to recent price changes compared to other types of moving averages.
2. Exponential Moving Average (EMA): The EMA is a type of moving average that gives more weight to recent prices. This makes it more responsive to new information. Traders use the EMA to identify short-term price trends and potential reversal points more quickly.
3. Weighted Moving Average (WMA): The WMA assigns a weighted value to each data point based on its age. The most recent data point has the highest weight, while the oldest data point has the lowest weight. This makes the WMA more sensitive to recent price changes than the SMA.
4. Smoothed Moving Average (SMMA): The SMMA, also known as the running moving average, takes into account a larger amount of data points and smooths out price fluctuations. It’s calculated by adding the value of the previous SMMA to the current price, subtracting the previous SMMA, and then dividing the result by the length of the moving average.
Each of these moving averages serves a different purpose and is used in different trading strategies. Traders choose the type of moving average based on their trading style, the market conditions, and their specific trading goals.
What is simple moving average (SMA)?
The Simple Moving Average (SMA) is a fundamental tool used in technical analysis, including Forex trading. It’s a method of smoothing out data to identify trends over a specified period of time, often referred to as the “total number of days” or “period”.
The SMA is calculated by adding up the closing prices of a security for a set number of periods (for example, 10 days, 50 days, 200 days, etc.) and then dividing this total by the number of periods. The result is an average that ‘moves’ as each new period’s data is included in the calculation and the oldest period’s data is dropped. This is why it’s called a ‘moving’ average.
In the context of moving averages, the “total number of days” or “period” refers to the number of trading days used to calculate the average. For example, a 10-day simple moving average (SMA) would involve adding up the closing prices of the last 10 trading days and then dividing by 10.

This period is adjustable and can be set to any length of time depending on the trader’s strategy. Shorter periods like 10 or 20 days are often used for short-term trading, while longer periods like 50, 100, or 200 days are used for long-term trend analysis. The choice of period can significantly affect the sensitivity of the moving average to price changes. A shorter period will make the moving average more sensitive to recent price changes, while a longer period will make it less sensitive.
It’s important to note that in Forex trading, the “day” refers to a trading day, not a calendar day. The Forex market operates 24 hours a day, five days a week, so a “10-day” moving average in Forex trading would cover the last 10 trading days, not the last 10 calendar days.
The SMA is represented on a chart as a line, which traders use to identify trends. If the price of a security is above the SMA line, it could indicate an uptrend, and if it’s below, it could indicate a downtrend.
However, the SMA gives equal weight to all data points in the period, regardless of their age. This means that it reacts slowly to recent price changes, which can be both an advantage and a disadvantage. On one hand, the SMA can help filter out ‘noise’ or short-term price fluctuations, providing a clearer view of the overall trend. On the other hand, because it’s slow to react, it may not signal trend reversals quickly enough for traders to respond.
The SMA is a useful tool in a trader’s arsenal, it should not be used in isolation. It’s best used in conjunction with other technical analysis tools and indicators to make more informed trading decisions. Remember, no tool can predict market movements with 100% accuracy, and all trading involves risk.
Forex Broker TD365 and Moving Averages
TD365 is a Forex broker that provides a platform for traders to participate in Forex trading. One of the key tools used in Forex trading on TD365 is moving averages. These include Simple Moving Averages (SMA) and Exponential Moving Averages (EMA), which are used to identify trends and market direction. They help traders to smooth out price data over a certain period to identify potential trading opportunities.
TD365 offers tight spreads on major Forex pairs, which can be beneficial when using moving averages as part of a trading strategy. The platform allows traders to trade the price movement of a currency pair without having to actually purchase any foreign currency.
As for the reviews of TD365, it has received positive feedback from users. On various review platforms, TD365 has an excellent rating with users praising its customer service, platform, and trading conditions. Users have highlighted the fast execution and chart loading, fixed spread, and the low market spread offered by TD365. Please see our TD365 broker review.
What is exponential moving average (EMA)?
The Exponential Moving Average (EMA) is a type of moving average that places a greater weight and significance on the most recent data points. Like the simple moving average, the EMA is used to identify trends in a market over a specified period of time.
The EMA is calculated by taking the difference between the current price and the previous period’s EMA, multiplying the result by a constant, and then adding this result to the previous period’s EMA. The constant in the EMA calculation is also known as the “smoothing factor”. It’s used to give more weight to the most recent data points. The smoothing factor is calculated based on the length of the EMA period, which is the number of data points you’re considering in your calculation.
The formula for the smoothing factor is 2/(N+1), where N is the length of the EMA period. For example, if you’re calculating a 10-day EMA, the smoothing factor would be 2/(10+1), or approximately 0.1818. This means that the most recent day’s price will be weighted at approximately 18.18% in the EMA calculation.
The main advantage of using the EMA over the SMA is that it reacts more quickly to price changes. This can be particularly useful in volatile markets where price action can change rapidly. However, because it is more sensitive to recent price changes, the EMA can also produce more false signals compared to the SMA.
The EMA is a valuable tool for traders who need to respond quickly to market changes. However, like all trading tools, it should be used in conjunction with other indicators and analysis methods to increase its effectiveness and reduce the risk of false signals. Remember, all trading involves risk and it’s important to thoroughly understand how each tool works before using it in live trading.

What is a smoothed moving average?
The Smoothed Moving Average (SMMA) is a type of moving average that aims to provide a less erratic line than other types of moving averages. It’s often used in technical analysis to identify underlying trends in a market over a specified period of time.
The SMMA is calculated in a two-step process. The first step is to calculate a Simple Moving Average (SMA) for the initial value of the SMMA. Then, for each subsequent data point, the formula for the SMMA is (Previous SMMA * (N – 1) + Current Price) / N, where N is the length of the SMMA period.
The SMMA takes into account a larger amount of data points than the SMA or the Exponential Moving Average (EMA). This results in a line that is smoother and less reactive to recent price changes, which can help filter out ‘noise’ or short-term price fluctuations, providing a clearer view of the overall trend.
However, because the SMMA is less sensitive to recent price changes, it may not signal trend reversals as quickly as the EMA. This makes the SMMA more suitable for long-term trend analysis and less suitable for short-term trading strategies that require quick responses to market changes.
In terms of trading signals, traders often look for crossovers between the price and the SMMA. A buy signal is generated when the price crosses above the SMMA, indicating a potential upward trend. Conversely, a sell signal is generated when the price crosses below the SMMA, indicating a potential downward trend.
Let’s consider a 5-day SMMA as an example. Suppose we have closing prices of $5, $6, $7, $8, and $9 for five consecutive days. The SMA for the first day would be $(5+6+7+8+9)/5 = $7. For the second day, the SMMA would be calculated as ((7 * (5-1) + 6) / 5) = $7.2, and so on. This process continues for each subsequent day, providing a smoothed line that represents the trend of the market.

As with all trading tools, the SMMA should be used in conjunction with other indicators and analysis methods to increase its effectiveness and reduce the risk of false signals. All trading involves risk and it’s important to thoroughly understand how each tool works before using it in live trading.
What is a linear weighted moving average?
The Linear Weighted Moving Average (LWMA), also known as the Weighted Moving Average (WMA), is a type of moving average that assigns a greater weight to the more recent data points. It’s often used in technical analysis to identify underlying trends in a market over a specified period of time.
The LWMA is calculated by multiplying each data point by a weight, summing these products, and then dividing by the sum of the weights. The weights are usually in a linear sequence, with the most recent data point having the highest weight and the oldest data point having the lowest weight. This means that the LWMA responds more quickly to recent price changes compared to the Simple Moving Average (SMA).
For example, if you’re calculating a 5-day LWMA, the most recent day’s closing price could be multiplied by 5, the previous day’s closing price by 4, and so on, until the fifth day’s closing price is multiplied by 1. The sum of these products is then divided by the sum of the weights (in this case, 15).
The main advantage of using the LWMA over the SMA is that it reacts more quickly to price changes, making it more suitable for short-term trading strategies. However, because it’s more sensitive to recent price changes, the LWMA can also produce more false signals compared to the SMA.
In terms of trading signals, traders often look for crossovers between the price and the LWMA. A buy signal is generated when the price crosses above the LWMA, indicating a potential upward trend. Conversely, a sell signal is generated when the price crosses below the LWMA, indicating a potential downward trend.
As with all trading tools, the LWMA should be used in conjunction with other indicators and analysis methods to increase its effectiveness and reduce the risk of false signals. All trading involves risk and it’s important to thoroughly understand how each tool works before using it in live trading. Remember, no tool can predict market movements with 100% accuracy. It’s always important to use risk management strategies and to consider your financial situation and tolerance for risk when trading.
Forex Broker Eightcap and Moving Averages
Eightcap is a well-known Forex broker that offers a platform for traders to participate in Forex trading. One of the key tools used in Forex trading on Eightcap is moving averages. These include Simple Moving Averages (SMA), Exponential Moving Averages (EMA), Smoothed Moving Averages (SMMA), and Linear Weighted Moving Averages (LWMA). These tools are essential in technical analysis as they help smooth out price data and identify trends over a specified period.
Eightcap provides access to platforms like MetaTrader and TradingView, which are celebrated for their comprehensive charting tools. These platforms offer a variety of moving averages that traders can use to analyze market trends and make informed trading decisions. The charts on Eightcap are highly appreciated for their user-friendly interface and detailed technical indicators, making it easier for traders to apply moving averages and other technical analysis tools.
In addition to Forex, Eightcap offers an impressive range of cryptocurrency trading options. This is a significant advantage for traders interested in diversifying their portfolio and trading in the dynamic cryptocurrency market.
As for the reviews of Eightcap, it has received positive feedback from users. Users have commended its low forex fees, fast and easy account opening process, and free deposits and withdrawals. However, as with any broker, it’s important to conduct your own research and consider the potential risks before trading. Remember, all trading involves risk and it’s crucial to thoroughly understand how each tool works before using it in live trading. See our Eightcap broker review.
Application of Moving Averages in Forex
How do you use moving averages in forex?
Moving averages are a fundamental tool in Forex trading, used to identify trends and potential trading opportunities. Here’s how you can use them:
- Identify Trends: Moving averages smooth out price data over a certain period of time, creating a line that can help you identify the overall trend. If the price is above the moving average, it might indicate an uptrend, and if it’s below, it might indicate a downtrend.
- Signal Potential Entry and Exit Points: Some traders use the crossover of two moving averages as a trading signal. For example, a bullish signal is given when a short-term average (like a 10-day moving average) crosses above a long-term average (like a 50-day moving average). Conversely, a bearish signal is given when the short-term average crosses below the long-term average.

- Determine Support and Resistance Levels: Moving averages can also act as dynamic support and resistance levels. In an uptrend, the moving average may act as a “floor” for the price, while in a downtrend, it may act as a “ceiling”.
- Filter Out Market Noise: By smoothing out price fluctuations, moving averages can help filter out market noise, allowing traders to focus on the underlying trend rather than short-term price movements.
Remember, while moving averages can be a helpful tool in your trading strategy, they should not be used in isolation. Always consider other factors and indicators when making trading decisions. And as always, it’s important to manage your risk appropriately when trading in the Forex market.
Forex Broker ThinkMarkets and Moving Averages
ThinkMarkets is a distinguished Forex broker that provides a platform for traders to participate in Forex trading. One of the key tools used in Forex trading on ThinkMarkets is moving averages. These include Simple Moving Averages (SMA), Exponential Moving Averages (EMA), Smoothed Moving Averages (SMMA), and Linear Weighted Moving Averages (LWMA). These tools are essential in technical analysis as they help smooth out price data and identify trends over a specified period.
ThinkMarkets provides access to platforms like MetaTrader and TradingView, which are celebrated for their comprehensive charting tools. These platforms offer a variety of moving averages that traders can use to analyze market trends and make informed trading decisions. The charts on ThinkMarkets are highly appreciated for their user-friendly interface and detailed technical indicators, making it easier for traders to apply moving averages and other technical analysis tools.
In addition to Forex, ThinkMarkets offers an impressive range of cryptocurrency trading options. This is a significant advantage for traders interested in diversifying their portfolio and trading in the dynamic cryptocurrency market.
As for the reviews of ThinkMarkets, it has received positive feedback from users. Users have commended its low forex fees, fast and easy account opening process, and free deposits and withdrawals. However, as with any broker, it’s important to conduct your own research and consider the potential risks before trading. Remember, all trading involves risk and it’s crucial to thoroughly understand how each tool works before using it in live trading. For more detailed information, you can check out our comprehensive broker review of ThinkMarkets.
What is the best moving average strategy?
The best moving average strategy often depends on the trader’s goals, risk tolerance, and trading style. However, one commonly used strategy is the Moving Average Crossover.
In the Moving Average Crossover strategy, two moving averages of different lengths are plotted on the same chart: a shorter period moving average (like a 10-day moving average) and a longer period moving average (like a 50-day moving average).
Here’s how it works:
Buy Signal: A buy signal is generated when the shorter period moving average crosses above the longer period moving average. This is considered a bullish event and indicates that it might be a good time to consider entering a long position.
In the given example, we observe that the 10-day moving average intersects and moves above the 50-day moving average for the AUDUSD pair. This upward crossover is typically seen as a bullish signal. As can be noted, following this crossover, the price continues its upward trajectory.

Sell Signal: Conversely, a sell signal is generated when the shorter period moving average crosses below the longer period moving average. This is considered a bearish event and suggests that it might be a good time to consider exiting a long position or entering a short position.

This strategy works best in trending markets and might produce many false signals in range-bound or sideways markets. Therefore, it’s often used in conjunction with other technical indicators to confirm signals and prevent false alarms.
Remember, while moving averages can be a helpful tool in your trading strategy, they should not be used in isolation. Always consider other factors and indicators when making trading decisions. And as always, it’s important to manage your risk appropriately when trading in the Forex market. All trading involves risk and it’s important to thoroughly understand how each tool works before using it in live trading. No strategy guarantees success, and past performance is not indicative of future results. It’s always important to use risk management strategies and to consider your financial situation and tolerance for risk when trading.
Forex Broker BlackBull and Moving Averages
BlackBull Markets is a reputable Forex broker that provides a platform for traders to engage in Forex trading. One of the key tools used in Forex trading on BlackBull Markets is moving averages. These include Simple Moving Averages (SMA), Exponential Moving Averages (EMA), Smoothed Moving Averages (SMMA), and Linear Weighted Moving Averages (LWMA). These tools are essential in technical analysis as they help smooth out price data and identify trends over a specified period.
BlackBull Markets provides access to platforms like MetaTrader and TradingView, which are celebrated for their comprehensive charting tools. These platforms offer a variety of moving averages that traders can use to analyze market trends and make informed trading decisions. The charts on BlackBull Markets are highly appreciated for their user-friendly interface and detailed technical indicators, making it easier for traders to apply moving averages and other technical analysis tools.
In addition to Forex, BlackBull Markets offers an impressive range of cryptocurrency trading options. This is a significant advantage for traders interested in diversifying their portfolio and trading in the dynamic cryptocurrency market.
As for the reviews of BlackBull Markets, it has received positive feedback from users. Users have commended its low forex fees, fast and easy account opening process, and free deposits and withdrawals. However, as with any broker, it’s important to conduct your own research and consider the potential risks before trading. Remember, all trading involves risk and it’s crucial to thoroughly understand how each tool works before using it in live trading. For more detailed information, you can check out our comprehensive broker review of BlackBull Markets.
As we conclude our exploration of Moving Averages in Forex, we invite you to continue your journey in understanding the intricacies of Forex trading. Our next blog post, Bollinger Bands: A Comprehensive Guide For Traders, will delve into another powerful technical analysis tool. Stay tuned to enhance your trading strategies and broaden your market insights. Happy trading! 📈