Posted on Aug 11, 2014 at 06:32 PM
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To start off, a simple moving average shows the average value of price over a certain period of time. Moving averages is known or commonly used to highlight the direction of a trend and smooth out price to avoid false breakouts, and noise. The best way to utilize moving averages is by combining it with another one. For example, when the 50 day moving average crosses above the 200day moving average this is considered a “golden cross” the upward momentum was confirmed once the short term moving average (50-day) crossed above the longer term moving average (200-day) When the opposite occurs and the 50 day moving average crosses below the 200 day moving average this is considered a death cross as the momentum in price action is declining. Here are a few examples of moving average crossovers.
EURUSD 50sma crosses below the 200sma signaling a death cross. Price fell over 200 pips before closing back over the 50sma. EURJPY 50sma crossed above the 200sma indicating the trend is bullish with a golden cross. Price action climbed over 500 pips before falling back below the 50sma
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