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Following the trend – common knowledge or the lemming with the locket?

This is the first and most basic strategy in forex trading. It assumes that the best way to earn money is to agree with the market. The trader decides to open or close a position when a given currency pair becomes a subject to certain trend. There are many to methods to support his or her decision, one of them is the use of the signals from the moving averages. This article is going to explain this most common method.

It is assumed, that if the exchange rate value crosses the moving average from the bottom, a trader should open a position on a certain pair. Setting the parameters of the moving average depends on the investor’s character. Short averages consisting of 2 to 10 forex sessions will provide many signals, whose utility is limited. The trader or the forex ea will recognize the trends quickly, but the high frequency of trading will result in greater costs. The use of longer averages consisting of more than 45 sessions allows the trader to avoid false trends and will limit the number of deals. However, much of the market momentum is lost. The main disadvantages of the moving averages method are delay and a huge number of false signals. Metatrader platform, the MT4 lets you use different types of averages like the weighted, exponential or adaptive averages. Trading platforms have also many other options. The trader can buy or create his or her own robot which will do the job. Since the use of averages is popular in forex trading online, there are many articles over the web and books on them. After reading a bunch of them, you may grab a more sophisticated book written by a mathematician or renowned trader. A simple robot based on an average bought over the Internet won’t bring in huge profit. If that was so, everybody would do that, right?

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