What is a Moving Average Indicator — Explanation, Examples, Best Indicators

Online trading requires a lot of knowledge about various indicators and the ways to use them. One of the main tools is the moving average indicator MT4. It is useful in many ways. We shall talk about what an MA is and what kinds of averages are there.

You can find out more about technical analysis tools in our previous article Pivot Points Indicator: Explanation How to Use.

What is a Moving Average?

What is a Moving Average Indicator — Explanation, Examples, Best Indicators

A Moving Average indicates market trends and assists users in following them. The name of the indicator is usually used in short, like this: (MA). This tool follows the price and creates a graph that smoothes volatility and minimizes the price “noise.” It can only show past or present directions, so future prices cannot be predicted for sure.

Pros

  • Shows a trend direction;
  • Shows trend reversals;
  • It can find potential support and resistance levels.

Cons

  • It is slower than the current price and shows the last close price, meaning that it changes slower than the price chart. 

Types of Moving Averages

In MetaTrader, only four main types of moving averages can be used. These are:

  • Simple MA

This is the most common indicator. It is used to find out the average of close prices for a selected period. 

It is simple — if you need to calculate a 10-day moving average, you add up a sum of 10 close prices and divide the result in 10. When there is a new close price, you delete the oldest one.

  • Exponential and Linear Weighted Moving Averages

Both types are very similar. Their task is to calculate the freshest prices with the biggest coefficient. That is why they give signals faster than any other moving averages. Please pay attention that although the signal is the fastest, part of them can be fake. Be careful with that.

Before you continue, make sure you check out the article Moving Average Forex Strategies to know how an MA is properly used in trading.

  • Smoothed Moving Average

This is the best moving average indicator if you need to clear the price movements from fluctuations and see whether there is a trend.

  • Bonus: slope indicator
What is a Moving Average Indicator — Explanation, Examples, Best Indicators

There also is a moving average slope indicator MT4. According to the slope, the indicator changes colors. For example, blue for flat, red for sloping downwards, and green for sloping upwards. It makes trading much easier.

Implementing Moving Averages in MetaTrader

A Moving Average is a tool that is already part of the MetaTrader software. To use it, you should:

  1. Press “Insert”;
  2. Get to the ‘Trend’ section;
  3. Select the Moving Average.

For proper usage, you need to set three main settings. At first, this is the period. This is the number of candlesticks that are used for calculating. Small periods are good to track prices while big periods are used for getting accurate signals.

Second goes the price. You can choose several options here, but the most popular choice among all traders is the close price.

Finally, it is the shift. A shift is used to move the indicator in time. Depending on the settings, the moving average will go up or down.

We hope that this article was useful to you. If you have any other questions left, have a look at our other articles related to this topic.

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