Moving Averages and Trend Analysis

The "King of Kings" in moving averages has got to be the EMA200

This particular indicator, when used correctly reveals the trend and helps visually reduce unwanted and confusing noise in many price charts.

Entries and exits become clearer with the help of moving averages. Trends become easy to manage and profits can be taken with confidence.

The two widely used averages are the EMA (exponential) and the MA or SMA (simple).

We are not interested here how they are calculated only what they are and what they can do for us in our trading.

The EMA gives more weight to recent prices and is quicker in reacting in comparison to the SMA

If I were to trade with just the bare minimum on a chart, then I would be happy to have price and the moving average only and I would make money period!

Don’t believe me? Then take a look at the chart below – look at the big red circle the MA's have crossed and are stacked up in the required order for the price to trend down.

A close just below the MA8 is where I would initiate a “short” trade - what is so difficult about taking on a trade when the MA's cross and line up in the correct order

If I were to settle for just one MA then it would be no other than the “king of kings” the almighty EMA200. This is the one that has been known to have stood the test of time for its reliability.

It is a known fact when experienced traders claim that the “bulls” reside above the EMA200 and the “bears” below. Taking this into account and assuming that I only have the EMA200 on the chart, the two small circles indicate where I would take a “long” trade. This is at the first close immediately above the EMA200.

I do not believe that having hundreds of indicators on a chart makes one a better trader – too many indicators is nothing but a recipe for disaster!

Remember that all those glamorous indicators are all dependant on price movement.

However this indicator must not be taken lightly.

When used correctly it reveals the major trend and helps visually reduce unwanted and confusing noise in many price charts.

Entries and exits become easier with the help of this indicator. Trends become easy to manage and profits can be taken with confidence.

The EMA200 is so powerful and reliably that it is a sin not to included it in all long term trading time frames

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