Page 54 - NEW FOREX FULL COURSE

FOREX TRADING COURSE FOR BEGINNERS

To start a 4-day moving average, add the last four days' closing prices and divide by four, the next
day, drop off the oldest price, add the new close, and divide by four again. The result is the new
moving average. Use the same system for any moving average you might want to develop.

Moving averages give signals when different averages cross one an- other. For example, in using
4-day, 9-day and 18-day moving averages, a buy signal would be given when the 9-day average
crosses the 18-day. However, to avoid false signals, the 4-day average should be higher than the
9-day.

Just the opposite is true for sell signals. To sell, the 4-day average must be below the 9-day.
The sell signal is triggered when the 9-day average crosses the 18-day. There are other conditions
you might wish to place on your averages to avoid false signals. One possible requirement is to
make the 4-day exceed the 9-day by a certain percentage before acting on the appropriate buy
or sell signal.
The caveat to moving averages is that although they work well in trending markets, they may
whipsaw you in a sideways, choppy market. It helps to "tune" the moving averages to a particular
market. A bit of brainwork is necessary to use a moving average. You can use the moving average
studies on Market Club streaming charts to find whether a fast or slow moving average is best
for your trading style.

Some traders who use moving averages follow the slower moving average signals to initiate a
position but a faster moving average to exit the trade, especially if substantial profits have been
built up. A linearly-weighted moving average also could help eliminate false signals. A 4-day

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