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Forex Trading: What Are Moving Averages?

Moving averages are pretty much exactly what they sound like when it comes to online gold trading. To determine a moving average, you will look at the average gold closing price over a certain number of years. This may seem like a lot of number crunching, but it will make much more sense when you actually look at a chart. There is generally a clear pattern to help gold traders smooth out the price action over the period of time they’re looking at on the chart. Here are some other details about how moving averages work.

Moving Averages Can Determine Market Direction

Anyone who has any kind of experience with gold trading online knows the importance of looking at past results to forecast the future. Moving averages do exactly that. You can look at the slope of the averages to help give you a visual of the direction of the market. What gold traders want to see on the chart is a smooth moving average, not a choppy one.

Look for the Smoothness

The smoother the moving average appears to be, the slower reactions to the market it has. A choppier moving average will react more quickly to the market. Naturally, the longer period of time you look at, the smoother the moving averages will look.

Simple Moving Averages

A simple moving average is nothing more than taking the closing prices over a period of time and dividing them by that same period. Simple moving averages help gold traders to look at a broader view of the market, rather than what it’s doing at any given time. Learning this skill can help you more easily determine whether the market is trending downward, upward or remaining stable.

Exponential Moving Averages

The problem with simple moving averages is they may be too simple. This means they may not take into consideration random price spikes, which leads to skewed data. Exponential moving averages will remove those spikes and emphasize more recent trends. Sometimes the simple moving average and exponential moving average will be very similar, but other times you may be surprised at how different they are.

Learning about and utilizing moving averages can greatly impact your gold trading online success in a positive way. They aren’t too complex to learn, but many gold traders make the mistake of not utilizing them to their full potential.

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