The MT4 trading platform offers you a plethora of tools and forex indicators to enable you to trade with ease and avoid a lot of pitfalls. One of those essential indicators is the MT4 Moving Average Indicator, a tool that assists you in understanding the average movement of prices over a specific period.
Therefore, with the Moving Average Indicator, you can easily have a grasp of how prices move and so decide when to enter the market without losing your money.
What is Moving Average?
A moving average (MA) is a stock indicator that is frequently used in technical analysis. The moving average of a stock is usually calculated to help smooth out the price data by generating an average price that is updated regularly.
In technical analysis, moving average is mainly used with price, though you can calculate it over any data that varies with time. A moving average is a value of the arithmetic mean of the price that is calculated constantly over a particular period.
For instance, let’s say we are using a 30-day moving average. The arithmetic mean of the price over the preceding 30 days is the value. The closing prices of those 30 days are summed and then divide by 30. However, every day, the value is calculated using the most recently transpired day to replace the oldest value in the data. Moving average is designed to smooth out fluctuation in prices. With this, you can easily observe the long-term tendency of the market by looking beyond temporary or irrelevant price blips.
Types of Moving Averages
There are two types of moving averages, and they include the simple moving average (SMA) and the exponential moving average (EMA).
Simple Moving Average (SMA)
This is the average price of a security over a particular time. For example, you can calculate the 30-day moving average by taking the last 30 days sum of closing prices and dividing by 30. Hence, each time a new data comes in, the average has to be recalculated, thereby creating a “moving average.”
Exponential Moving Average (EMA)
The Exponential Moving Average adds more weight to the most recent prices as it tries to reflect new market data better. This is why it is regarded as a weighted average calculation.
The differences between SMA and EMA
There are a few differences between the SMA and EMA. Some of the differences include:
1. The SMA is a true indicator for the average prices over a particular period, while the EMA adds more emphasis to the most recent prices.
2. While the SMA is a bit slower, the EMA is faster in reacting to the most recent index price changes.
3. The SMA gives equal weighting to all values, but the EMA gives more weight to current data.
Advantages of Moving Averages
1. They act as support and resistance, thereby helping to improve profit.
2. They enable you to identify the trend of the stock.
3. They can serve as entry or point in a trade.
1. Moving averages cannot definitely predict the future trend of the stock, though they can indicate the present.
2. It is a lagging indicator.
3. Sometimes, the crossover strategy for entry may not work.
4. They can sometimes be prone to false signals.
Setting up MT4 Moving Average Indicator
If you are new to forex trading or never used the MT4 Moving Average Indicator before, here is how to set it up.
1. Click on “Insert” and hover your mouse over the Indicators and Trend.
2. Click on “Moving Average.”
Setting the common parameters
You will see the settings menu appearing after you are done with the steps above.
You can control the majority of indicators by various common parameters.
There are mainly two types of parameters:
1. Calculations of the indicator: for example, the number of periods used for the moving average.
2. Visuals of an indicator: for example, the way it works, the lines’ color and thickness, etc.
Changing the parameter at a later time
In order to change the settings of the indicator directly on the chart at a later date, follow these steps:
1. Right-click the MA (In order to show the menu below, you have to be exact on the line of the indicator).
2. Choose MA (14) Properties – The (14) is the respective parameter (Periods) and may vary, based on your choice when setting the parameters.
The parameter menu appears again to allow you access to change the indicator.
Deleting the moving average indicator
In case, if you want to delete a moving average indicator, do the following steps:
1. Right-click the indicator you wish to delete (In order to show the menu below you have to be exact on the line of the indicator).
2. Click on “Delete Indicator.”
That will take out the indicator automatically.
How to Interpret the Simple Moving Average on a Trading Chart
It is possible for you to calculate a moving average you are applying to your trading chart. The average is “moving” since you are averaging the trade information across a period. To calculate a moving average is quite straightforward:
1. Look for the average of several prices. For instance, you may calculate the average of 12 prices.
2. The following day, include the latest price to the total and subtract the oldest price, ensuring that the total number of prices is kept at 12. The standard simple moving average makes use of the close because the close is the review of the period’s action and sentiment.
3. Compute the average of this set of prices.
4. Repeat this recalculation for every new price.
The figure shows a 12-day simple moving average.
Conclusion of MT4 Moving Average Indicator
MT4 Moving Average Indicator helps you in studying price movement in the market for a specific period, thereby enabling you to make the right decision to enter or leave the market without losing your money. However, Moving Average indicators alone cannot give you the guarantee of making a profit in the market, hence, you need to use it in combination with other indicators.
Hence, we offer you several tested forex indicators and tools that will help you trade comfortably without stress and increase your chances of earning profits. So, take leverage of the tools and start trading like a professional through this link.