The inverse moving average (IMA) is a technical indicator used in forex trading to identify potential trend reversals. It is a variation of the standard moving average (MA) indicator, but instead of tracking the average price over a given period, it tracks the inverse of the average price. This article will explain how to create the IMA forex indicator.
Step 1: Choose the Timeframe
The first step in creating the IMA forex indicator is to choose the timeframe that you want to use. This will depend on your trading strategy and the currency pair you are trading. Generally, traders use the IMA on daily or weekly charts.
Step 2: Calculate the Moving Average
The next step is to calculate the moving average for the selected timeframe. The moving average is the average price of a currency pair over a certain period. To calculate the moving average, you need to add up the closing prices of the currency pair for the selected period and divide the result by the number of periods.
For example, if you want to calculate the 20-day moving average for the EUR/USD currency pair, you would add up the closing prices of the last 20 days and divide the result by 20. This will give you the 20-day moving average for the EUR/USD currency pair.
Step 3: Calculate the Inverse Moving Average
Once you have calculated the moving average, the next step is to calculate the inverse moving average. To do this, you need to divide the number 1 by the moving average.
For example, if the 20-day moving average for the EUR/USD currency pair is 1.1200, the inverse moving average would be 1/1.1200 = 0.8928.
Step 4: Plot the Inverse Moving Average
The final step is to plot the inverse moving average on the forex chart. You can do this by adding the IMA indicator to the chart in your trading platform.
To add the IMA indicator in the MetaTrader 4 trading platform, go to the “Insert” tab and select “Indicators”. From the list of indicators, select “Moving Average” and set the type to “Exponential”. Set the period to the timeframe you have chosen and set the shift to 0. Finally, change the “Apply to” option to “Previous Indicator’s Data” and click “OK”.
The IMA indicator will now be plotted on the forex chart as a line. The IMA line will move above and below the price chart, indicating potential trend reversals.
The inverse moving average (IMA) is a useful forex indicator for traders who want to identify potential trend reversals. Creating the IMA indicator is a simple process that involves calculating the moving average and then dividing the number 1 by the moving average. Traders can then plot the IMA on their forex chart using their trading platform. By using the IMA indicator in conjunction with other technical indicators and fundamental analysis, traders can make more informed trading decisions.