Introducing Broker: Moving averages used for technical analysis of trends

An introducing broker will usually help new clients with understanding the most fundamental and useful techniques for trading in Forex. When looking to trade currency pairs, a technical analysis is necessary to help predict future trends and thus when to trade the currency pair in one direction or the other.

One of the oldest (and one of the easier to understand and implement) techniques for technical analysis that an introducing broker will likely demonstrate to new clients is “moving averages”. And the name basically defines itself, “moving averages” consists of multiple averages that will move as new data (new trade rates) comes in. 

Why is “moving averages” useful to an introducing broker and their clients?

There are so many trades and fluctuations in the Forex market, especially with the most active currency pairs, that every spike or trough does not necessarily have meaning and does not lend well for direct analysis for overall trends. This is where “moving averages” comes in; it will smooth out the market noise and helps make the market trends become more visible. 

Based on how often a new Forex trader wishes to make trades an introducing broker can help narrow down the width (period of time) for each average should be so that it could provide the greatest value for the trader. If the width is too large or too small, it will be difficult to determine the type of trend the trader is looking for, if not impossible.

There are a couple of tweaks that can be made to this simple “moving average” – where the data points in a time period are added together and then divided by the number of data points taken. One of the more common changes to a “moving average” that can be made is by “weighting” the value of each data point value taken. Usually, this is done when using a single moving average (instead of multiple averages that are running consecutively) and the oldest data value is weighted the least and each more recent data point is weighted more until the latest value which would be weighted the most.

There are many ways that the “moving averages” technique for trend analysis can be tweaked to fit a traders needs and that is why an introducing broker is very useful to narrow down the best options for a Forex trader.