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One of the words you probably have heard around the foreign exchange market or Forex is the term moving averages. Moving averages is where a trend is strong enough where they can be grouped together to watch how the trends move. An example of this is the SMA or otherwise known as the simple moving average. It is the last 200 days of your currency pair grouped together.
What Does This Mean For You?
If you watch the simple moving averages of your pairs of currency you can determine if the market is going to be entering a weak zone. This would happen if the average prices fell during an uptrend in the foreign exchange market. What you should look for before this happens is a series of down trends in the simple moving average that go down quite a bit and not just a few points on the trend lines there. There will be a shard downhill slope from where the last up trend line was located at the time. So it will be very visible to anyone.
What Else Can the SMA or simple moving averages show you?
The simple moving averages or the SMA also can show you the general direction of the currency you are holding by looking at the trend lines that happen between peaks of both and high and lows. If the trend line is increasing steadily then it is going upwards and it would be a good time for buying more currency in that pair. If the trend lines are going down steadily then it would probably be a good thing to start considering to sell your currency pairs.
It can also show you where you should buy or sell your currencies in the foreign exchange market. It is similar to just watching the trend lines but since it is over the last 200 days you will get a clearer picture of how the trends are moving.
The simple moving average also will be able to tell you where the resistance and supports are for the last 200 days where it might be visible in a shorter trend line model. This is invaluable for serious traders as they might not able to see clearly where the resistance and supports are in particular on a touch and go trend line graph.
It is another way that gives you more control over each currency pair that you control by being able to view more information that you might normally
In conclusion the fact that the trend lines are extended for 200 days allows the businesses to determine a support or resistance area and to know when it would be good to buy or sell based off that area. It also allows them to know the general direction of each trend for the currency pairs they are controlling by watching it over a longer period of time. So now you can see why the simple moving average is one of the most important terminologies that you hear around the foreign exchange market.