Leading Indicators
Choose a MA to Trade with Trading Strategies
A trader can choose a moving average based on the chart time frame that he is trading; the trader might choose to use this MA indicator on the minute charts, hourly charts, daily charts or even week charts.
The trader can also select to average the closing price, opening price or median price.
Moving average indicator is a oftenly used indicator to measure strength of trends. The data is precise and its output as a moving line can be customized to a trader's preferences.
Using the trading moving average is one of the basic ways to generate buy and sell signals which are used to trade in direction of the market trend, since the MA indicator is a lagging indicator & a trend following indicator - this means that it will tend to give late gold entry signals as opposed to leading indicators. However, as a lagging indicator it gives more accurate signals & is less prone to whipsaws compared to leading indicators.
Gold Traders select the moving average period to use depending on the type of trading they do: short term gold trading, medium term gold trading and long term gold trading.
- Short-term gold trading: 10 - 50 MA Period
- Medium-term gold trading: 50 - 100 MA Period
- Long-term gold trading: 100 - 200 MA Period
The price period in this case can be measured in minute charts, hourly charts, daily charts or even week charts. For our example we will use 1 hour chart time frame period.
Short term gold trading moving averages are sensitive to price action and can spot trends signals faster than the long term moving averages. Shorter term gold trading moving averages are also more prone to whipsaws 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 whipsaws.
Long term gold trading moving averages help avoid gold whipsaws, but are slower in spotting new trends & trend reversals.
Because long term MAs calculate average using more price data, it does not reverse as fast as a short term gold trading moving average and it is slow to catch the changes in the trend. However, the longer term gold trading moving average is better when the trend stays in force for a longer time but may also give late xauusd 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 (gold whipsaws).
