The word “Moving Average” must have come up frequently if you have been researching forex trading. The Moving Average, also known as the MA, is closely watched by forex traders to assess the state of the market. But what does the Moving Average in MT4 Forex trading mean? Let’s talk with us, FXCM, your licensed broker.
The average market closing price over a given period of time is represented by a stock indicator called a moving average in technical analysis. 50, 100, or 200 days are possible durations for this. The Moving Average is frequently used by traders to show the market’s momentum at the moment. The determination of the moving average aids in reducing the effects of unpredictable, abrupt variations in stock price throughout the given period of time.
To determine the trend direction of a specific stock, technical analysts utilize the moving average as a tool. The MA can also determine the level of support and resistance. It is also a lagging indicator based on historical stock prices. The lag will increase with the length of the calculation period for the moving average. Given that they are based on prices from the previous 100 or 200 days, a 200-day or 100-day Moving Average will have a much more significant lag than a 20-day Moving Average.
Therefore, the Moving Average will be more sensitive to changes in stock price the shorter the time it is produced. It will be less responsive to changes if the timeframe is longer. The 50-day and 200-day Moving Averages are often the two that traders choose to use. Investors, however, are free to select any timeframe they deem appropriate. The length of the timeframes an investor uses to compute their moving averages can vary. For example, calculating MAs for short-term trading requires a more petite time frame, but long-term trading will require a larger time frame.