Most forex traders, regardless of their trading skill levels, prefer to use SMA because of its simplicity and ease of understanding. Using the indicator tool involves dividing the cumulative total of data points for a given period by the number of periods based on current currency prices.
Additionally, the indicator tool creates signals that alert traders when to enter and exit an active forex trading market. SMA calculates the opening and closing times of currency prices and price lows and highs. Most forex traders apply average lengths of 10, 20, 50, 100 and 200 to their trading charts, depending on their forex trading time zones.
Advantages and disadvantages of the simple moving average
Advantages
- It is one of the less sophisticated forex trading tools which makes it easy to use even for first time traders.
- Unlike other trading tools, it is not prone to fluctuations. In contrast, the ups and downs in currency prices do not affect the trading tool.
- It is one of the most reliable technical analysis tools for identifying market resistance and support points.
- It is one of the best starting trading bases for first time forex traders
- It helps remove short-term noise from trading charts
Disadvantages
- It puts more emphasis on past price movements without acknowledging recent changes.
- Each price taken receives equal emphasis.
- It is not a practical trading tool for intraday and short-term traders
If you don’t like the standard Moving average, you can try Magic move.
