The moving average is one of the most basic and popular technical analysis tools in foreign currency trading. Moving averages are used by Forex investors to confirm trends, identify new trends and spot trends about to reverse.

There are three types of moving averages: Simple, Weighted and Exponential.

In a simple moving average each price point over the specified period is given equal weight. The user must define whether the high, low or close is used, these price points are then added together and averaged. As each price point is added to the equation a line is formed and the oldest price point in the sample is dropped.

A weighted moving average gives more emphasis to recent data. Each price point is multiplied by a weighting factor which will change every day. These figures are then added and divided by the total of the weighting factors. The weighted moving average provides smoothing to a curve of prices while being more responsive to recent price movements.
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Below you’ll find the second and last part of our Forex Technical Analysis Introduction.

Moving Averages
A moving average, in technical analysis, is the most used indicators in a family of statistical techniques to analyze time series data.

A moving average series in Forex trading can be calculated for any time series, but is most often applied to currency prices or trading volumes. Moving averages are used to smooth out short-term fluctuations, thus highlighting longer-term trends or cycles. The threshold between short-term and long-term depends on the application, and the parameters of the moving average will be set accordingly.

Simple moving average
A simple moving average is the unweighted mean of the previous n data points. For example, a 10-day simple moving average of closing price is the mean of the previous 10 days’ closing prices.
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