Trading Signals, Forex
There are many trading signals that can be used to determine when to enter or exit a trade in the forex market. Some of these trading signals can be more complex than others but the majority all come down to the basics of support, resistance and previous price action. For this particular article I am going to look at using support and resistance alongside some exponential moving averages as basic forex trading signals.
What are moving averages? Moving averages are used to highlight a trend within a particular trading pattern and are one of the most popular tools available to traders. The equation for calculating moving averages is fairly complex but most charting packages will do this automatically on request to show the average price of a security at a given time. When the short moving average crosses above the long moving average there is an upward trend and when the short moving average crosses below the long moving average there is a downward trend.
For this trading signal forex charts will be set for a 5 minute time frame with two exponential moving averages one set for Nbr periods of 20, this is the long moving average, and one set for Nbr periods of 10, this is the short moving average. It is simple enough that every time these moving averages cross there is a trading signal to enter a trade and then when they cross back it is a trading signal to exit that trade and enter one in the opposite direction. This method alone in theory is fine but when there is a moment on consolidation you will find yourself with a high loss rate. This is why we use these two moving averages with support resistance and previous price action.
We are going to assume that the short moving average has just moved above the long and indicating a change in the short term trend, it has moved into a buy situation. Although the trading signal is now to buy we must first look back at the previous price action of the day. In doing so we see that the price has reversed back from a price 20 pips higher than where the crossover has just occurred. We wait for the current price to move past that previous price before we enter the trade.
I personally only look back at previous price action within the current trading day. This will change depending on the time frame you wish to trade over. The reason we look to suppress the previous price action is not just to avoid consolidation but also to ensure the trend is well directed giving us an overall safer trade. There are other support and resistance levels that one should be aware of when entering and exiting trades, mainly psychological or round numbers the most significant is the 20000 on the GBP/USD currency pair ($2 to the 1).
Article Source: FxTradingStock.com
About the Author
Adam had been trading forex for years with little success. Adam originally had no experiance of the forex markets so he joined Colin Atkin's selected members club. Colin is a professional trader who shares his trading live, all you have do is watch & copy what he does and take the profits. Since Adam joined Colin he has had the cash to invest in other projects.
by: Adam Woods
Total views: 71
Word Count: 486
Date: Sun, 18 Apr 2010
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