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Trader Lab · Technical analysis

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Moving averages: the trend in one line

A moving average joins the average closing prices of a set number of candles. It shows the market's direction at a glance, which is why it is the first indicator most traders learn.

75%+ of retail investor accounts lose money trading CFDs.

Simple or exponential

TypeCalculationBehaviour
SMAPlain average of closesSmooth, slow
EMAMore weight on recent pricesFaster, more false signals

Short-term traders often lean to the EMA, trend followers to the SMA. Stick with one setting long enough to learn how it behaves.

Choosing the period

Common choices: 20 for the short term, 50 medium, 200 long. The 200-day average is among the most watched lines in markets; many traders treat price above it as a long-term uptrend.

Reading it

  • Slope: up, down or flat tells you trend or range.
  • Price position: above the line, buyers lead; below, sellers.
  • Pullbacks: in an uptrend, a dip to the average that bounces is a possible entry.

Golden cross, death cross

A short average crossing above a long one is a golden cross; below, a death cross. Clear signals, but always late, and in sideways markets they repeat and mostly fail.

Stacked averages

With the 20 above the 50, the 50 above the 200 and all three rising, the uptrend is strong. Many traders then look only for buys on pullbacks and skip sells.

Adding them in MT4 or MT5

  1. Insert, Indicators, Trend, Moving Average.
  2. Choose the period, Simple or Exponential, applied to Close.
  3. Give each period its own colour.

Fewer false signals

  • Trade in the direction of the higher timeframe's average.
  • Stay away when the averages are flat.
  • Put stops beyond the last swing, not just past the line.

Add momentum with MACD or RSI.

Questions

Is SMA or EMA better?

EMA reacts faster and suits short-term trading; SMA gives a calmer view of the bigger trend. Pick one and test it consistently.

How many moving averages should I use?

Three is enough: short, medium and long. More lines make the chart harder to read.

Are moving averages enough to make money?

They show direction well, but nothing guarantees profit. Use them with a stop-loss, proper size and another reason to enter.

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