Moving Average

One of the simplest forex indicators to understand is the moving average. You probably know that an average is sum of a given series of numbers divided by that set of numbers: 1+2+3+4+5 divided by 5.

In the case of forex trading, you take a given period of time, say one hour, and you take a specific number of hours, take the sum of the prices of the currency pair for each hour, and then divide by the set of numbers.

The moving average that is the result smooths out price movement, erasing the volatility, so that the trader can spot a trend.

The Best Forex Brokers + Trading Platforms

Broker	Our Rating	Description	Minimum Deposit	Regulation	Visit
eToro	5	The leading Social Trading platform with 4.5m traders Follow other traders or be a leader Personal service and VIP perks	$200	FCA, CySec, ASIC	Visit Broker eToro Review	Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Plus500	5	No commissions and low spreads Advanced trading tools Minimal account fees	€100	FCA, CySec :	Visit Broker Plus500 ReviewT1 ROTW	Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 80.6% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
XM	5	Free forex signals + market research Online education and webinars Fee free withdrawals and deposits	$5	CySEC, FSP, ASIC	Visit Broker XM ReviewROTW	Risk Warning: Your capital may be at risk
IQOption	4.5	Stylish & Powerful Platform Trade Bitcoin + 12 Other Top Cryptocurrencies Plus Forex, Options, Stocks & ETF Trading	$10	CySec	Visit Broker IQOption Review	Risk Warning: Your capital may be at risk
LCG (London Capital Group)	4.5	World class trading platform Expert market analysis FCA Regulated and traded on the LSE	0	FSA	Visit Broker LCG (London Capital Group) ReviewT1 ROTW	Risk Warning: Your capital may be at risk
Easy Markets	4.5	Free Guaranteed Stop Loss Segregated funds at top tier banks Fixed spreads & negative balance protection	$100	ASIC, CySEC	Visit Broker Easy Markets ReviewT1 ROTW	Risk Warning: Your capital may be at risk
AVATrade	4.5	Trusted, regulated broker with 10 yrs experience Multi award winning company Segregated accounts with leading banks	$100	Central Bank of	Visit Broker AVATrade ReviewT1 ROTW	Risk Warning: Your capital may be at risk
Markets.com	4	Tight spreads without commissions Advanced charting tools	$100	CySec	Visit Broker Markets.com ReviewT1 ROTW	Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
ETX Capital	4	Choice of two professional trading platforms – TraderPro and MT4 Free trading course for deposits over £1,000 Choice of Forex, CFDs, Spread Betting and Cryptocurrencies	€100	FCA	Visit Broker ETX Capital ReviewT1	Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79.6% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
FBS Markets.	4	Split second execution No requotes Range of accounts	$5	IFSC	Visit Broker FBS Markets. ReviewROTW	Risk Warning: Your capital may be at risk
InstaForex	3.5	'Asia's top broker' Wide choice of leverage options	$1	RAFMM, The Federal	Visit Broker InstaForex ReviewROTW	Risk Warning: Your capital may be at risk
EXNESS (NZ) Ltd.	3.5	Instant fund withdrawals - no commissions Tight spreads from 0.1 points Unlimited leverage	-	FDR (NZ), CySEC	Visit Broker EXNESS (NZ) Ltd. ReviewT1 ROTW	Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74-89% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
HF Markets Ltd. (HotForex)	3.5	8 Trading Platforms Spreads from 0.1 Pips $0 fees on deposits	$5	FSC & CySEC	Visit Broker HF Markets Ltd. (HotForex) ReviewROTW	Risk Warning: Your capital may be at risk
FXPrimus	3	Trusted by 100,000s of traders Fully licensed in the EU by CySec Tight spreads and fast withdrawals	$100	FSC Mauritius	Visit Broker FXPrimus ReviewROTW	Risk Warning: Your capital may be at risk
OLYMP TRADE	2		10		Visit Broker OLYMP TRADE Review	Risk Warning: Your capital may be at risk

Broker rankings last updated 20/11/2018 02:36

Some traders also use the exponential moving average. The exponential moving average is actually a weighted moving average, meaning that it gives greater weight to the recent days’ prices.

This makes sense given that they are more likely to be accurate than older prices – in a long moving average, very old prices get the same weight as almost new ones.

The weighting applied to the most recent price depends on the number of periods in the moving average.

How To Calculate The Moving Average

There are three steps to calculating an exponential moving average.

1. First, calculate the simple moving average.
   • An exponential moving average has to start somewhere so a simple moving average is used as the previous period's exponential moving average in the first calculation.
2. Second, calculate the weighting multiplier.
3. Third, calculate the exponential moving average.

So, for example, for a 10-day exponential moving average:

Simple Moving Average: 10 period sum / 10

Multiplier: (2 / (Time periods + 1)) = (2 / (10 + 1)) = 0.1818 (18.18%)

Exponential Moving Average: {Close - EMA (previous day)} x multiplier + EMA (previous day)

You won’t have to make these calculations, as it will be available on the forex platform to plug in and do it for you. 

Observation of price movements with respect to moving averages often is useful – for example, a given pair will break higher or lower after crossing the 200-day moving average.

Traders watch for these patterns which are often remarked in forex commentary.