SMA is means simple moving average simple moving average. As one of the first indicators used in the market, it is also an indicator that new traders need to know first if you want to trade with a reputable forex broker. The SMA line connects moving average points, closing in a certain time frame, to form a price movement line and has eliminated abnormal volatility factors, reducing volatility and helping to reduce volatility. Easily view market trends. So, in this article or with us, let's get to know what SMA is? and its meaning in Forex trading.
How to calculate MAS
Currently, traders often use the following SMA lines: SMA 10, SMA 14, SMA 20, SMA 50, SMA 100 and SMA 200. Each line represents a different value and meaning.
Example: What is the SMA20 – this is the moving average of the last 20 trading sessions. The same, similar:
- SMA 14 is 14 days
- SMA 50 is 50 days
- SMA 100 is 100 days
- SMA 200 is 200 days
In fact, there is no distinction as to which SMA is preferred. This depends on the user's habits. Because each road has different functions and uses. SMA 10, SMA 14, SMA 20 for short term use. SMA 50 is for medium term and SMA 100 and SMA 200 is for long term.
Watch now: Find out what is MA? The most accurate way to trade moving averages
Meaning of SMA in Forex
SMA helps investors make accurate trading decisions. Specifically, the SMA line is important when trading Forex as follows.
Identify market trends
The SMA shows the direction of the currency pair's price movement in the future. Therefore, traders can rely on the SMA to analyze and evaluate the market. From there, know when to enter the order to make a profit.
Market trend is divided by time into long term, medium term, short term. When based on the SMA, we will determine the market trend as follows:
- For short term Forex trend we will use SMA20. Thus, if the price crosses above the 20 SMA, the price is in a short-term uptrend. On the other hand, if the price turns down to the SMA20, the price will follow the short-term downtrend.
- This happens the same way for the medium and long term, you also rely on the SMA to determine the trend above.
The SMA line results in slow but slow but steady price movement. This indicator has the ability to eliminate noise signals, when prices or traps when changing prices suddenly fluctuate.
Identify support and resistance
The SMA acts as a dynamic support and resistance line, so at touchpoints traders can decide to enter trades.
- If you see the price moving above the SMA, falling, touching that line and moving up, that is support.
- On the other hand, if the price moves below the SMA and rises and touches that line, this is the resistance point.
This way of determining you can fully apply to long, medium and short term trends.
Find entry points, take profit and stop loss
Thanks to the SMA line on the chart, traders will determine the entry time quite accurately, they will know when to stop loss and take profit (make a profit), helping traders feel more comfortable when participating in transactions.
- When the SMA is moving down and the price is below the SMA. At this time, you can monitor the movement, if you see the price touching the SMA, enter a sell order.
- Likewise, if you see that the SMA is in an uptrend and the price is above the SMA, wait for the price to touch the SMA and enter a buy order.
Guide to trading with effective SMA lines
The SMA shows price movements very close to the market. Therefore, using this indicator in trading is very necessary. However, when using it, you also need to identify the signals to know when to sell and when to buy.
View more: Find out what is the EMA? How to Use the EMA on Forex Effectively
The buy signal is shown through the SMA line.
According to leading experts, a buy signal will occur when the short-term SMA crosses above the long-term SMA. Specifically, you must enter a purchase order in the following cases:
- The price line crosses one of the SMA 20, SMA 50, SMA 100.
- If the 20 SMA exceeds the 50 SMA, this is a sign of a long-term uptrend.
- If you see the price line moving up to SMA 20 and at the same time SMA 20 going over SMA 50. Also, the price line, SMA20 and SMA50 are rising and touching each other, this is an uptrend.
The sell signal is shown through the SMA line.
To identify a sell signal, traders can also rely on the short-term SMA signal to stay below the long-term SMA. How to identify a specific sell signal as follows:
- The price line crosses one of the SMA 20, SMA 50 and SMA 100 lines.
- If the 20 SMA crosses below the 50 SMA, this is a long-term bearish signal.
- If you see the price line cross SMA 20 and SMA 20 cross SMA50. At the same time, price lines, SMA20 and SMA50 touch each other and then decrease, this is the downtrend of the market.
Above is all the information and how to use SMA in Forex trading. I hope you understood What is MAS?? I hope that through this article you can use SMA in Forex trading as well as make a lot of profit with this simple but effective technical indicator. Don't forget to follow forex signals to find a good entry point.
View more: Summary of forex knowledge for beginners you need to know