SIMPLE MOVING AVERAGE (SMA) INDICATOR

The simple moving average works by averaging past price data, showing the recent path, and predicting short-term price direction. The longer the SMA period, the more it lags behind current prices.

Using a longer SMA period means a slower response to price changes. Instead of just focusing on the current market price, moving averages offer a broader perspective, allowing us to assess future price direction. SMAs help identify trends, whether up, down, or ranging. They also act as support and resistance in trending markets.

However, a drawback of simple moving averages is their vulnerability to price spikes. These spikes can generate false signals, creating the impression of a new currency trend when, in reality, nothing has changed.

BUY SETUP

For a buy setup,

        ● Wait for the price to start trading above the SMA. This is a sign that the price is in a bullish move.

        ● Wait for the price to pull back to the SMA line to place your buy entry. In an uptrend, the SMA line should act as support.

        ● Place your stop loss below the previous low.

        ● Exit the position when the price breaks below and stays below the SMA.

SELL SETUP

For a sell setup,

        ● Wait for the price to start trading below the 30-SMA. When it trades below the SMA, it indicates a bearish trend.

        ● Wait for the price to return to the SMA and place your sell entry. In a downtrend, the SMA acts as a resistance level.

        ● Place your stop loss slightly above the previous high.

        ● Exit the position when the price breaks above the SMA.

CONCLUSION

Simple moving averages are great for trading trending markets as they show clearly when a market is trending. Moreover, they act as support and resistance levels, creating good trading opportunities.

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