CFD Trading: The Simple Moving Average

The Simple Moving Average is an indicator that calculates the future price movement of the past.

Equation

Is the indicator based on a 10 period timeframe is the future price calculated from the past 10 prices. The equation is

(Price 1 + price 2 + price 3 + price 4 + price 5 + price 6 + price 7 + price 8 + price 9 + price 10) / 10 time period = Future price

Time period

The equation is simple which makes the simple moving average best in a trend-following market. The timeframe has also an impact on the calculated price; the longer the time period is the slower is the simple moving average to react on trend changes in the market.

Purpose

The simple moving average purpose is to find the trend changes in the market. The indicator is an indicator that should not stand alone in the decision to enter a trade.

The Simple Moving Average illustrated in a graph

In the graph is the simple moving average illustrated; the graph illustrates a blue line, red line and a green line; the blue line is the simple moving average based on a time period of 10; the red one is based on a time period of  20 and the green one is based on a time period of 50.

The green line responds later than the red and blue line.

The second indicator is the stochastic. The purpose is to verify the simple moving average.

When to enter a trade?

The green, red and blue line gives different indications on when to enter a trade as they are based on different time periods.

When the simple moving average is above the price line is the price bearish and bullish when the price line is below the price line.

The stochastic gave an indication at the time where the simple moving average crosses the price bar; around 7 o’clock the 10-10. The stochastic is also in a downtrend which indicates that the price is increasing as the price is moving away from the overbought zone. The indication is at the tops at the stochastic; they are getting lower and lower.     

Try the simple moving average

Which time period is best when a trader use the simple moving average is individualized; the trader have to try different time periods or place the simple moving average with different time periods at the same time as illustrated in the graph.

Where to trade with the simple moving average?

The CFD trading platform PLUS500 offers the traders the simple moving average as an indicator. The list of indicators is a the f(x) button on the trading platform.

Watch the review of PLUS500 or download the trading platform from their website from this link.

Please notice that your capital may be at risk trading CFD.