How To Apply Moving Averages With MetaTrader 4: Moving Averages
  1. How To Apply Moving Averages With MetaTrader 4: Introduction
  2. How To Apply Moving Averages With MetaTrader 4: Moving Averages
  3. How To Apply Moving Averages With MetaTrader 4: Using MAs
  4. How To Apply Moving Averages With MetaTrader 4: Customizing The MA
  5. How To Apply Moving Averages With MetaTrader 4: Editing The MA
  6. How To Apply Moving Averages With MetaTrader 4: Conclusion

How To Apply Moving Averages With MetaTrader 4: Moving Averages

A moving average (MA) is a type of technical indicator that is used to show the average value of a security's price over a specified time period. MAs are commonly used with time series data to smooth short-term price fluctuations and emphasize longer term trends. Appearing as curving lines overlaid on a price chart, moving averages are used to identify trends and define areas of possible support and resistance. Below, Figure 1 shows a EUR/USD chart with 20-period and 50-period MAs applied.

Figure 1: This EUR/USD chart has two moving averages: a 50-period, drawn as the dark blue line, and a 20-period, drawn in bright pink.


While there are many different types of MAs, the simple moving average (SMA) is the most basic. It is an unweighted arithmetic mean of the previous X number of price bars. MAs are typically based on the closing price of each price bar; however, traders can choose to base price on the open, high, low or other price. A SMA is calculated by adding the closing price (or other price) of the previous X price bars and dividing by X. For example, to find a five-period MA, we would add the previous five data points (prices) and divide by five:

Closing Prices: 5, 6, 7, 8, 9, 10, 11, 12, 13 and 14
First value of five-day SMA = (5 + 6 + 7 + 8 + 9) / 5 = 7 (35 ÷ 5 =7)
Second value of five-day SMA = (6 + 7 + 8 + 9 + 10) / 5 = 8 (40 ÷ 5 = 8)
Third value of five-day SMA = (7 + 8 + 9 + 10 + 11) / 5 = 9 (45 ÷ 5 = 9)

Each value is calculated using the previous five prices; as its name implies, a MA is an average that moves. Old data is dropped as new data becomes available, and the MA continues to print as new price bars form (a five-period MA, for example, always uses only five price bars in its calculation, even as more price data becomes available).

Many other MAs are used by technical analysts including the exponential moving average (EMA), double exponential moving average (DEMA) and MA crossovers, where two MAs of different lengths are added to one price chart.

MA Lengths and Timeframes
Investors and traders can customize a MA to suit individual analytical objectives. Short MAs, for example, are often preferred by short-term traders. These MAs may have a lookback period (the number of price bars to be used in the calculation) between five and 30. Traders who look for medium-term trends may use a lookback period that ranges between 20 and 60 periods. Long-term investors may focus on larger MAs with lookback periods of 100 or more.

In general, shorter MAs react faster to price and, as a result, tend to have less lag. Longer MAs, on the other hand, are less sensitive to price and do a better job at smoothing the price data. It is up to each trader to determine the MA length(s) that best suits his or her needs and preferences.

How To Apply Moving Averages With MetaTrader 4: Using MAs

  1. How To Apply Moving Averages With MetaTrader 4: Introduction
  2. How To Apply Moving Averages With MetaTrader 4: Moving Averages
  3. How To Apply Moving Averages With MetaTrader 4: Using MAs
  4. How To Apply Moving Averages With MetaTrader 4: Customizing The MA
  5. How To Apply Moving Averages With MetaTrader 4: Editing The MA
  6. How To Apply Moving Averages With MetaTrader 4: Conclusion
RELATED TERMS
  1. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth ...
  2. Simple Moving Average - SMA

    A simple, or arithmetic, moving average that is calculated by ...
  3. Bar Chart

    A style of chart used by some technical analysts, on which, as ...
  4. Bar

    A graphical representation of a stock's movement that usually ...
  5. Exponential Moving Average - EMA

    A type of moving average that is similar to a simple moving average, ...
  6. Average Price

    1. A representative measure of a range of prices that is calculated ...
RELATED FAQS
  1. How do I use Moving Average (MA) to create a forex trading strategy?

    Learn a simple forex trading that uses multiple moving averages and is designed to create low-risk, high-reward trading opportunities. Read Answer >>
  2. What are the main advantages of using Moving Averages (MA)?

    See why moving averages have proven to be advantageous for traders and analysts and useful when applied to price charts and ... Read Answer >>
  3. What is the difference between a simple moving average and an exponential moving ...

    The only difference between these two types of moving average is the sensitivity each one shows to changes in the data used ... Read Answer >>
  4. Are exponential moving averages more effective than simple or weighted moving averages?

    Learn about different types of moving averages, as well as moving average crossovers, and understand how they are used in ... Read Answer >>
  5. How is a simple moving average calculated?

    Learn about the simple moving average, how the indicators are used, and how to calculate a stock's simple moving average ... Read Answer >>
  6. Why is the 50 Simple Moving Average (SMA) so common for traders and analysts?

    Learn the various purposes the 50-period simple moving average (SMA) serves, and understand why it is so commonly used by ... Read Answer >>

You May Also Like

Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center