Leading Technical Indicators - Choose a Moving Average to Trade CFD With

A trader can choose a moving average based on the cfds chart timeframe that he is trading: the trader might choose to use this Moving Average indicator on the minute charts, hourly charts, day charts or even weekly charts.

The trader can also choose to average the closing cfds price, opening cfds price or median cfds price.

Moving average indicator is a commonly used indicator to measure strength of trends. Data is precise and its output as a moving line can be customized to a trader's preferences.

Using the cfd moving average is one of the basic analysis method to generate cfd buy & sell trading signals which are used to trade in direction of the trend, since the Moving Average indicator is a lagging indicator & a trend following indicator - this means that it will tend to give late cfd entry signals as opposed to leading indicators. However, as a lagging indicator it gives more accurate signals and is less prone to generating whipsaws compared to leading indicators.

CFD Traders choose the moving average period to use depending on the type of cfd trading style they do: short term cfd trading, medium term cfd trading and long term cfd trading.

• Short-term cfd trading method: uses 10 - 50 Moving Average Period
• Medium term cfd trading method: uses 50 - 100 Moving Average Period
• Long term cfd trading method: uses 100 - 200 Moving Average Period

The cfds price period in this case can be measured in minute charts, hourly charts, day charts or even weekly charts. For our example we will use 1 hour chart timeframe period.

Short term cfd moving averages are sensitive to cfds price action and can identify trends signals faster than the long term moving averages. Shorter term cfd moving averages are also more prone to whipsaws fake out signal compared to long term moving averages and a trader should choose a price period that will generate a signal early but not give too many cfd whipsaws fakeout signals.

Long term cfd moving averages help to avoid cfd whipsaws, but are slower in identifying new trends and trend reversals.

Because long term moving averages calculate the average using more cfds price data, it does not react to cfds price changes or reverse as fast as a short term cfd moving average and it is slow to catch the changes in the cfds price trend. However, the longer term cfd moving average is better when the trend stays in force for a longer time but may also give late trading signals.

The work of a trader is to find a moving average period which will spot trends as early as possible while at the same time avoiding fake out signals (also commonly known as cfd whipsaws).