Valutrades Basic Trading Course - Lesson 9: Moving Averages on MT4

Welcome to the Valutrades Basic Trading Course!

Free FX Trading Signals from Valutrades: www.valutrades.com/en/trading-signals

This is a series of videos, designed to launch the journey of beginning traders, in every aspect of trading with Valutrades.

In our ninth video, let’s take a look at the Moving Average.

The Moving Average is a critical part of technical analysis and is the best method for looking at historical price action over any time period.

To start, open a chart from your favourite Index, like the DAX, and select the daily (D1) chart.

Click on “Indicators List” on your MT4 toolbar. Select “Trend” and “Moving Average”.  

Change the Period to “200” and select a shade of blue. 

Make sure your MA Method is set to “Simple” and click “OK”

In this case, it is a 200 Period or 200 Candle SMA.

So, how do we calculate the price at each point along the line?  

The indicator looks back at the closing price on each candle or period, adds up all the prices, and divides by 200.

Therefore, this point represents the average price over the last 200 periods.  

You may have heard analysts and major financial news channels referring to Bear and Bull Markets.

A basic rule is that price action that occurs above the 200-Day Moving Average is considered to be a Bull Market.

Therefore, price action that occurs below the 200-Day Moving Average is considered to be a Bear Market.

It is a good idea to experiment with different Moving Average periods on different chart time frames to become accustomed to how they behave.  

Your trading style and risk appetite will dictate which will serve you best.  

For example, a 10 period SMA might not be giving us much information at all.  

This 20 period Simple Moving Average might give us some good information on current market trends.  

The 50 Period might be more in keeping with your style.  

This 200-period Moving Average may give you less information than you need to open a position.  

As with any Lagging Indicator, backtesting is easy; just turn off the Scroll function on MT4 and drag the chart backward in time.

You may wonder why in some cases where price has reversed to the downside, the Simple Moving Average continues to rise. 

Conversely, with reversals to the upside the SMA continues to drop.  

Quite simply put, they are averages and are affected equally by every period from beginning to end.

So, let’s see if we can fix this.

Open another Moving Average, but, instead of a Simple Moving Average let’s try an Exponential Moving Average.

Now we can see that this Exponential Moving Average (or EMA) gives more weight to more recent price action.  

Your preference will come from practice and your trading style.

That’s all for now.

In the next lesson we will be looking at how to use Moving Average Crosses on MT4.

Happy trading with Valutrades and we will see you soon.

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