What is a moving average?

Moving averages simply measure the average price or exchange rate of a currency pair over a specific time frame. For example, if we take the closing prices of the last 10 days, add them together and divide the result by 10, we have created a 10-day simple moving average (SMA).

There are also exponential moving averages (EMAs). They work the same as a simple moving average, except they place greater weight on the more recent closing prices. The mathematics of an exponential moving average is complex, but fortunately for trackers, most charting packages calculate them automatically and instantaneously.

Parameters. The most commonly used time frames for moving averages are 10, 20, 50, and 200 periods on a daily chart. As always, the longer the time frame, the more reliable the study. However shorter term moving averages will react more quickly to the market's movements and will provide earlier trading signals.

10, 20, 50 and 200-Day SMAs on non-Daily Charts Also note that as you change your time frame in the chart (say, changing a daily chart into an hourly), the moving average will need to change too. If you want a 10-day moving average line on an hourly chart, you would need a 240-hour SMA (that is 10-day times 24 hours).