How to Use Moving Averages in Forex

Using moving averages to assess trend direction is the oldest form of technical analysis and remains one of the most commonly used indicators. The primary benefit provided by a moving average is to reduce market "noise" (rate fluctuations) that make it difficult to accurately interpret real-time exchange rate data. Moving averages "smooth out" these fluctuations, making it easier for you to identify and authenticate potential market rate trends from the normal up-and-down rate fluctuations common to all currency pairs.

All traders seek to find a trend when studying pricing data. Traders also attempt to identify a rate trend reversal point in order to time market buys and sells at the most profitable level. Moving averages can help in both regards.

Moving averages are essential to other types of technical analysis as well - most notably Bollinger Bands and Stochastic Measurements. You'll learn about these indicators in later lessons.