In the forex faq today, we shall be talking about how the market trend is affecting the 50, 100 and 200 moving average.
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Below is the question from one of my newsletter subscriber:
I will be happy, if you can elaborate more on how moving average of 200, 100 and 50 indicators affect the market trend?
In fact, I use the 50, 100 and 200 EMA as a tool to better show me the trend of the market. All you need is plotting these 3 EMAs on your chart and you will be able to tell the trend as follow.
When these 3 EMAs are stacked one after another with good angle and separation, it is a sign of a good trend.
When these 3 EMAs are clustered together, it is a sign of consolidation in action (price moving sideways).
Therefore if you are looking to trade in the direction of the market trend, you will have to make sure that the 3 EMAs are stacked nicely in the direction of your trade.
However when you see the 50 EMA crossing over the 100 EMA, there is a possibility that the price is going to reverse and therefore you have to be caution.
For the trend to really reverse you will have to wait for the 50 and 100 EMAs to cross over the 200 EMA and this is a sign of confirmation that the price has reversed.
If you are a range trader, you will wait for the EMAs to cluster together as it is a sign that the market is current in consolidation which is a great market for range trader.
I hope that I have answered your question well and if you have anything to ask, do feel free to write in the comment below.
If you have anything to share with us, do feel free to give your comment below as it will be a valuable information for traders in this community here.