| Regardless of what Forex trading strategy you use to | | | | charting package. It is standard practice to use two or |
| pinpoint your trades, most of the time the entry point to | | | | three different MAs on the same chart, for example 5, |
| a trade is the easy part. Whatever your preferred | | | | 10 and 20 and these will be used to show trend |
| system, there are usually set criteria that you will be | | | | movements of the price within the particular chart. The |
| looking for, which signal to you when you should place | | | | smaller the MA, then the closer the line will be to the |
| a trade. However, unless you are running a tight | | | | current price and the larger the MA, the further away |
| 'Scalping' strategy in your Forex trading, where you | | | | from the current price. |
| might have a Limit Order set up to automatically take | | | | Different MAs suit different currency pairs, but if you |
| you out of the trade after 10 or 20 points, then you | | | | look at a historical chart of your preferred currency |
| have to manage the trade and have a strategy to | | | | pair and play around with different MAs, you will be |
| decide when to close out and hopefully take your | | | | able to see which ones sit smoothly alongside the |
| profit. | | | | price action of a move for the majority of the time |
| Sadly, neither the Forex, nor indeed any other financial | | | | without the actual price crossing and closing on the |
| markets, move in a smooth line (otherwise we would | | | | other side of the line. |
| all be enormously rich!) and typical patterns, consisting | | | | Once you have determined which ones suit your |
| of a move followed by a retracement or indeed a | | | | chosen pair, then you can use them as a guide to exit |
| sustained move in the opposite direction are all part of | | | | the trade. For example, if you had chosen the 10 |
| a normal trading day. Therefore, unless you have | | | | period MA as your exit line, you could remain in your |
| psychic powers of being able to predict the exact | | | | trade until the price either breached or closed through |
| tops and bottoms of a market move (and if you have, | | | | that line, depending on your chosen strategy. It is a fine |
| I would love to hear from you!), then you need to be | | | | balance between risk and reward - the smaller the |
| able to put rules in place to determine when you should | | | | MA you choose as your exit line, the closer to the |
| exit your trade. Too many times, traders have allowed | | | | actual price you will be and therefore you will lose less |
| their profits to bleed away from good trades, because | | | | profit at that point in time, if the line is breached. |
| they didn't have a strategy to know when to exit. | | | | However, because the market moves in a jagged |
| For me, as a technical trader, one of the simplest and | | | | fashion, it may be that as soon as it breaches the line, |
| most effective tools to determine a trade exit is the | | | | that the market then turns again in your desired |
| simple Moving Average. This will never allow you to | | | | direction, and had you chosen a larger period MA, you |
| get out of a trade with the absolute maximum profit, | | | | would still be in the trade and would ultimately possibly |
| as this is impossible, but if used sensibly, then it can | | | | make additional profits. You never know exactly what |
| lead to locking in steady profits over time. | | | | the market will do and therefore you have to make |
| Moving Averages (MA) | | | | your choice based on your best judgement of the |
| A Moving Average is a technical indicator, which | | | | historical Forex data available on the charts. |
| shows the average market price value over a set | | | | However, whatever choice of MA you do make as |
| period. For example, if you were trading a 5 Minute | | | | your exit indicator, you must be disciplined and stick to |
| chart, then a 10 Period Moving Average line would | | | | the system. Over time, if you have done your historical |
| show the average price of the market over the last 10 | | | | analysis correctly, you will then find that the averages |
| x 5 Minute periods, i.e. 50 Minutes. This is portrayed as | | | | will work in your favour in your Forex trading and you |
| a line on your chart (usually to a colour of your choice) | | | | will be able to lock in your profits. |
| and will feature as an available indicator on any good | | | | |