CAN MOVING AVERAGE GIVE CONTEXT TO PRICE MOVEMENT
Consider the common situation in Forex when price makes a move for 50 or more pips in one direction. It could be a sudden move covering a large distance in just one or two bars, or it could move steadily over many days. Whether the move surprises you or steadily makes tracks in one direction, it happens that you notice this market might be trending. Will it continue? Or, should you expect it to suddenly reverse? How do you know?
Trading is a speculative venture without absolute assurance of timing or direction for the market’s next move, but there is something you can do to stack the odds in your favor. Plotting a moving average gives context to changes in price, and provides a template for planning trades with expectations about what the market will do next.
Look at these 2 charts. The first one, without any technical indicators, is a picture of rapid change in price. It would be impossible to know if it’s random, if it’s expected to continue going down, or if it might swing back in the opposite direction.
In the second picture, two moving averages give context to that same price action.
In the midst of a choppy market where price is jumping up and down over a period of time, the moving averages show me that price is holding to one side, giving me the information I need to know this market is in a down-trend and will be looking for lower lows. Going short is a good bet in spite of the volatility.
Moving averages are guides, providing context and making the world of price action look a lot less random.
Trading is a speculative venture without absolute assurance of timing or direction for the market’s next move, but there is something you can do to stack the odds in your favor. Plotting a moving average gives context to changes in price, and provides a template for planning trades with expectations about what the market will do next.
Look at these 2 charts. The first one, without any technical indicators, is a picture of rapid change in price. It would be impossible to know if it’s random, if it’s expected to continue going down, or if it might swing back in the opposite direction.
In the second picture, two moving averages give context to that same price action.
In the midst of a choppy market where price is jumping up and down over a period of time, the moving averages show me that price is holding to one side, giving me the information I need to know this market is in a down-trend and will be looking for lower lows. Going short is a good bet in spite of the volatility.
Moving averages are guides, providing context and making the world of price action look a lot less random.
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