Sunday, November 30, 2008

Forex Simplest Technical Indicators - Exponential Moving Average

Exponential moving average (EMA) or most famously known as exponential average (EA) is the most widely use by novice traders. This is because it is the simplest form of technical indicator that can easily be understood by anyone in forex trading. Perhaps you can see most widely discussed subjects in forex forums are run by beginners usually about the EA subject on Technical Analysis trading system.

EA is consist of two line of moving average which you can adjust according to your needs. Novice traders usually will form their own EA indicators by adjusting the moving average line time period parameters. One of the famous setting created by traders to conquer a trend is the 50:120 day simple moving average line.

Every trader EA setting can be different to one another depending on their knowledge, experience, and ideas toward the market movement. Some may adjust it according to other traders setting or they can create their own parameters setting depending on how they see it fit on the market movement. Not all EA with one setting can work with every time frame or currency pairs. And you have to adjust this accordingly based on what time frame you are trading at and also the currency pairs.

The formation of EA is the basic foundation of slow stochastic and moving average convergence divergence (MACD). As you can see it formed by two moving average line just as the stochastic and MACD does. Below EA indicator setting is using 21 Period Exponential average and 8 period simple moving average work very good in 15 minutes time frame.

exponential moving average 15 minute time frame candlestick chartThis is another setting using Simple Moving Average 15 (Blue) and 20 (Red).

simple moving average 15 minute time frameThe setting of Exponential moving average is depending on individual preference of how they look at the market. The more experience a trader is usually make better setting to novice traders because they have experiment their system on daily trading. However there are universal setting that all traders use to believe in is the EMA 200 to determine trend. So as long as the EMA 200 moving in its direction the market will always bound within its path. As you can see.

exponential moving average ema 200 trendPerhaps now you have the idea how to create your own indicators using Simple Moving Average line. They work almost like MACD and Slow stochastic indicators and in fact Bollinger Bands has a similarity to it. The basic idea is all about moving average.

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