5 Ways to Trade Using a Moving Average Indicator in MT4 & MT5

What is a Moving Average?

A moving average (MA) is a widely used technical indicator in trading and investing. It is used to smooth out fluctuations in an asset’s price by calculating the average price over a certain period of time. This period of time is known as the “lookback period” and can range from a few days to several months. The most common lookback periods are the 50-day moving average, the 100-day moving average, and the 200-day moving average.

The moving average is plotted on a chart alongside the asset’s price, and it helps traders and investors identify trends, support and resistance levels, and potential buy and sell signals. There are different types of moving averages, such as simple moving average (SMA) and exponential moving average (EMA). The main difference between them is the way they are calculated and the weight given to more recent prices in the calculation.

Traders and investors often use moving averages in combination with other technical indicators to confirm signals and make more informed trading decisions.

 

How to put a Moving Average on a chart in your MT4 Platform

To add a moving average to the MT4 (MetaTrader 4) platform, follow these steps:

 1. Open the MT4 platform and select the chart for the asset you want to add a moving average to.

2. Right-click on the chart and select “Indicators” from the drop-down menu.

3. Select “Moving Average” from the list of indicators.

4. A window will appear where you can customize the settings for the moving average. You can choose the moving average type (simple, exponential, etc.), the period, the colour and the width of the line.

5. Click “OK” to add the moving average to the chart.

6. The moving average will be plotted on the chart, and you can adjust the settings as needed.

The MT4 platform allows you to add multiple moving averages to a single chart. This way, you can compare different moving averages with different lookback periods to gain a better understanding of the asset’s short-term, medium-term, and long-term trends.

Adding a moving average to the MT4 platform is a simple process that can be done in a few steps. By using moving averages on the MT4 platform, traders can gain a better understanding of the asset’s price trends and make more informed trading decisions.

 

What are the 5 strategies that use Moving Averages to Trade?

Crossover strategy: A moving average crossover occurs when a shorter-term moving average crosses above or below a longer-term moving average. When the shorter-term average crosses above the longer-term average, it is a bullish signal, indicating that the asset’s price is likely to rise. Conversely, when the shorter-term average crosses below the longer-term average, it is a bearish signal, indicating that the asset’s price is likely to fall.

Trend identification: A moving average can also be used to identify the trend of an asset. When the moving average is trending upward, it indicates that the asset’s price is in an uptrend. Conversely, when the moving average is trending downward, it indicates that the asset’s price is in a downtrend.

Support and resistance: Moving averages can also act as support and resistance levels. If the asset’s price is approaching a moving average, it may be met with resistance and struggle to break through. Conversely, if the asset’s price is falling and approaching a moving average, it may act as a support level and stop the asset’s price from falling further.

Multiple moving averages: Using multiple moving averages can provide a more comprehensive analysis of an asset’s price. By using multiple moving averages with different timeframes, traders can get a better understanding of the asset’s short-term, medium-term, and long-term trends.

Moving average convergence divergence (MACD): The MACD is a technical indicator that uses moving averages to identify momentum. The MACD is calculated by subtracting a 26-period moving average from a 12-period moving average. A positive MACD indicates that the 12-period moving average is above the 26-period moving average, indicating bullish momentum. Conversely, a negative MACD indicates that the 12-period moving average is below the 26-period moving average, indicating bearish momentum.

By understanding how to use moving averages to identify crossovers, trends, support and resistance, multiple moving averages, and the MACD, traders can gain a better understanding of the asset’s price and make informed trading decisions.

 

Automate Your Trading

Our robots at InvestorHubFx allow for easy implementation of automated trading without the need for coding knowledge. Use the InvestorHubFx Navigator to Screen for trade setups that look like they will suit you, then apply the parameters to the robots when you drag and drop the file onto your chart from your Navigator section of your MT4 or MT5 platform.

 

What is the difference between Simple Moving Average and Exponential Moving Average?

Two of the most commonly used types of moving averages are the simple moving average (SMA) and the exponential moving average (EMA). Although both types of moving averages serve the same purpose, there are some key differences between them that traders and investors should be aware of.

The simple moving average (SMA) is calculated by adding up the closing prices of an asset over a specified number of periods and then dividing the total by the number of periods. The result is a single value that represents the average price of the asset over that period. For example, a 50-day simple moving average is calculated by adding up the closing prices for the last 50 days and then dividing that total by 50. The SMA is a lagging indicator, which means that it is based on past data and may not be as responsive to recent price changes as other indicators.

On the other hand, the exponential moving average (EMA) gives more weight to recent prices, which makes it more responsive to recent price changes. The EMA is calculated by applying a multiplier to the most recent closing price and then subtracting the previous EMA. The result is a single value that represents the average price of the asset over that period. The EMA is also a lagging indicator, but it is considered to be less so than the SMA.

 

When Are These Indicator Parameters Used?

When it comes to choosing between the SMA and EMA, it depends on the trader’s preference, strategy, and what they are trying to achieve. The SMA is considered to be more stable and less sensitive to price fluctuations, making it useful for identifying long-term trends. The EMA, on the other hand, is more sensitive to price fluctuations, making it useful for identifying short-term trends.

Traders who are looking for a long-term view of the market, might prefer to use the SMA, while traders who are looking for a short-term view of the market, might prefer to use the EMA. Some traders may also use a combination of both the SMA and EMA, in order to get a comprehensive view of the market.

The simple moving average (SMA) and the exponential moving average (EMA) are both useful technical indicators, each with its own advantages and disadvantages. The choice between the two depends on the trader’s preference, strategy, and what they are trying to achieve. Whether you’re a short-term or long-term trader, using moving averages in your analysis can help you make more informed trading decisions.

 

How to use moving average to identify trends and trend changes in the market?

One use of moving averages is to identify trends and trend changes in the market.

A trend is a directional bias in the market, either upward or downward. When the moving average is trending upward, it indicates that the asset’s price is in an uptrend. Conversely, when the moving average is trending downward, it indicates that the asset’s price is in a downtrend. Traders can use this information to make informed decisions about buying or selling an asset.

To identify a trend using a moving average, traders typically plot a moving average on a chart alongside the asset’s price. The most common lookback periods for moving averages are the 50-day moving average, the 100-day moving average, and the 200-day moving average. A shorter-term moving average, such as a 50-day moving average, will be more responsive to recent price changes and is useful for identifying short-term trends. A longer-term moving average, such as a 200-day moving average, will be less responsive to recent price changes and is useful for identifying long-term trends.

To identify a trend change, traders can use multiple moving averages with different lookback periods. When a shorter-term moving average crosses above a longer-term moving average, it is a bullish signal, indicating that the asset’s price is likely to rise. Conversely, when a shorter-term moving average crosses below a longer-term moving average, it is a bearish signal, indicating that the asset’s price is likely to fall. This is known as a moving average crossover and can be used to identify trend changes.

It’s worth noting that moving averages, by themselves, are a lagging indicator, that means that they might provide signals after the trend has already started. To confirm trend changes, traders use other indicators and chart patterns, such as candlestick patterns, to confirm these signals.

Traders can use moving averages with different lookback periods to gain a better understanding of the asset’s short-term, medium-term, and long-term trends. By understanding how to use moving averages to identify trends and trend changes, traders can make more informed trading decisions.

 

How to use moving averages in combination with other technical indicators, such as the Relative Strength Index (RSI) and the Bollinger Bands, to confirm trading signals?

While moving averages are a valuable tool for identifying trends and trend changes, they can be even more powerful when used in combination with other technical indicators.

One such indicator that is commonly used in combination with moving averages is the Relative Strength Index (RSI). The RSI is a momentum indicator that compares the magnitude of recent gains to recent losses in an asset’s price to determine overbought and oversold conditions. When the RSI is above 70, it indicates that the asset is overbought and may be due for a price pullback. Conversely, when the RSI is below 30, it indicates that the asset is oversold and may be due for a price rebound.

By combining moving averages with the RSI, traders can confirm signals generated by either indicator. For example, if a short-term moving average crosses above a long-term moving average, indicating a bullish signal, traders can confirm the signal by looking at the RSI. If the RSI is below 30, it confirms that the asset is oversold and that the bullish signal generated by the moving average crossover is likely to be accurate.

Another technical indicator that is commonly used in combination with moving averages is the Bollinger Bands. Bollinger Bands are a volatility indicator that consists of a simple moving average in the middle and two standard deviation lines plotted above and below the moving average. The upper Bollinger Band represents an overbought level, while the lower Bollinger Band represents an oversold level.

By using moving averages with Bollinger Bands, traders can confirm signals generated by either indicator. For example, if a short-term moving average crosses above a long-term moving average, indicating a bullish signal, traders can confirm the signal by looking at the Bollinger Bands. If the asset’s price is below the lower Bollinger Band, it confirms that the asset is oversold and that the bullish signal generated by the moving average crossover is likely to be accurate.

Moving averages are a valuable tool for identifying trends and trend changes in the market. When used in combination with other technical indicators such as the RSI and the Bollinger Bands, moving averages can provide a more comprehensive analysis of an asset’s price. By understanding how to use moving averages in combination with other technical indicators, traders can make more informed trading decisions.

 

How to use moving averages to set stop-loss and take-profit levels?

Moving averages are used to smooth out fluctuations in an asset’s price by calculating the average price over a certain period of time. One use of moving averages is to set stop-loss and take-profit levels.

Stop-loss is an order that is placed to automatically exit a trade if the price of an asset moves against the trader’s position, to minimize the losses. A common way to set a stop-loss level is to use a moving average. For example, if a trader is long on an asset, they may set their stop-loss level below the moving average, at a certain distance or percentage, to protect against a potential price drop.

Take-profit is an order that is placed to automatically exit a trade when the price of an asset reaches a certain level of profit. A common way to set a take-profit level is to use a moving average. For example, if a trader is long on an asset, they may set their take-profit level above the moving average, at a certain distance or percentage, to capitalize on a potential price increase.

Traders can use different types of moving averages, such as simple moving average (SMA) and exponential moving average (EMA), to set stop-loss and take-profit levels. Because the EMA is more responsive to recent price changes than the SMA, it can be a good choice for setting stop-loss and take-profit levels on short-term trades. On the other hand, the SMA is considered to be more stable and less sensitive to price fluctuations, making it a good choice for setting stop-loss and take-profit levels on long-term trades.

Using multiple moving averages with different lookback periods can also be useful for setting stop-loss and take-profit levels. For example, if a trader is long on an asset, they may set their stop-loss level below a short-term moving average, such as a 50-day moving average, and their take-profit level above a long-term moving average, such as a 200-day moving average.

By understanding how to use different types of moving averages and different lookback periods, traders can make more informed decisions about where to set their stop-loss and take-profit levels. This can help to minimize losses and maximize profits, which is crucial for any successful trading strategy.

 

How to use multiple moving averages with different lookback periods to gain a better understanding of the asset’s short-term, medium-term, and long-term trends

One of the main uses of moving averages is to gain a better understanding of the asset’s short-term, medium-term, and long-term trends. By using multiple moving averages with different lookback periods, traders can get a more comprehensive view of the market.

A short-term moving average, such as a 50-day moving average, is more responsive to recent price changes and is useful for identifying short-term trends. A medium-term moving average, such as a 100-day moving average, is less responsive to recent price changes than a short-term moving average and is useful for identifying medium-term trends. A long-term moving average, such as a 200-day moving average, is even less responsive to recent price changes than a medium-term moving average and is useful for identifying long-term trends.

When a short-term moving average, such as a 50-day moving average, crosses above a medium-term moving average, such as a 100-day moving average, it is a bullish signal, indicating that the asset’s price is likely to rise in the short-term and medium-term. Conversely, when a short-term moving average crosses below a medium-term moving average, it is a bearish signal, indicating that the asset’s price is likely to fall in the short-term and medium-term.

When a medium-term moving average, such as a 100-day moving average, crosses above a long-term moving average, such as a 200-day moving average, it is a bullish signal, indicating that the asset’s price is likely to rise in the medium-term and long-term. Conversely, when a medium-term moving average crosses below a long-term moving average, it is a bearish signal, indicating that the asset’s price is likely to fall in the medium-term and long-term.

 

What is the role of moving averages in portfolio management, including how to use moving averages to create and adjust a diversified portfolio.

The role of moving averages in portfolio management is to help investors identify trends and trend changes in the market, which can be useful for creating and adjusting a diversified portfolio.

When creating a diversified portfolio, investors typically use a combination of stocks, bonds, and other assets, to spread risk and maximize returns. One way to use moving averages in portfolio management is to identify trends and trend changes in the market, and then adjust the portfolio accordingly.

For example, when a short-term moving average, such as a 50-day moving average, crosses above a long-term moving average, such as a 200-day moving average, it is a bullish signal, indicating that the market is likely to rise in the short-term and long-term. In this case, an investor may want to adjust their portfolio by increasing their exposure to equities and other growth assets. Conversely, when a short-term moving average crosses below a long-term moving average, it is a bearish signal, indicating that the market is likely to fall in the short-term and long-term. In this case, an investor may want to adjust their portfolio by increasing their exposure to bonds and other defensive assets.

Using multiple moving averages with different lookback periods can also be useful for creating and adjusting a diversified portfolio. For example, if a trader is long on an asset, they may set their stop-loss level below a short-term moving average, such as a 50-day moving average, and their take-profit level above a long-term moving average, such as a 200-day moving average 

It’s worth noting that using only one indicator, like the moving averages, to create and adjust a portfolio, is not advisable. Investors should also consider other indicators such as fundamentals, market sentiments and other technical indicators.

 

Moving averages in algorithmic trading, including the development of moving average based trading strategies

Did you know you can trade automatically in MT4 and MT5 using Expert Advisors (EA’s) written in MQ4 or MQ5 coding language in the MetaEditor program connected to the MetaTrader program?

Algorithmic trading allows traders to enter and exit positions based on a set of rules so that the trader does not have to manually place orders, watch the charts and more.

The use of moving averages in algorithmic trading is to help identify trends and trend changes in the market, which can be used to develop trading strategies.

Algorithmic trading refers to the use of computer programs to automate the execution of trades based on a set of rules or algorithms. One way to use moving averages in algorithmic trading is to develop trading strategies that are based on moving average crossovers.

For example, a simple moving average crossover strategy can be programmed to buy an asset when a short-term moving average, such as a 50-day moving average, crosses above a long-term moving average, such as a 200-day moving average. Conversely, the algorithm can be programmed to sell an asset when the short-term moving average crosses below the long-term moving average.

Another strategy that could be developed is the dual moving average crossover strategy, this strategy uses two moving averages, a fast and a slow one. The strategy will generate a buy signal when the fast moving average crosses above the slow moving average, and a sell signal when the fast moving average crosses below the slow moving average.

It is worth noting that these strategies, as any other strategies, have its own set of drawbacks and limitations. For example, moving averages are lagging indicators and may produce signals after the trend has already started. To improve the performance of these strategies, traders could use other indicators, such as the Relative Strength Index (RSI) or the Bollinger Bands, to confirm the signals generated by the moving averages.

Our robots at InvestorHubFx allow for easy implementation of automated trading without the need for coding knowledge. Use the InvestorHubFx Navigator to Screen for trade setups that look like they will suit you, then apply the parameters to the robots when you drag and drop the file onto your chart from your Navigator section of your MT4 or MT5 platform.