The 20 Moving Average (MA) is one of the most popular indicators used by traders in the forex market. It is also known as the simple moving average (SMA) and is widely used by technical analysts to help identify trends and potential trading opportunities. In this article, we will explain how to set up the 20 moving average in forex and how to use it to improve your trading.
What is the 20 Moving Average?
The 20 moving average is a line that represents the average price of a currency pair over the past 20 periods. For example, if you are using a daily chart, the 20 MA will represent the average price of the currency pair over the past 20 days. If you are using a 4-hour chart, the 20 MA will represent the average price over the past 80 hours (20 periods x 4 hours).
The 20 MA is a popular indicator because it provides a simple way to identify the direction of the trend. When the price is above the 20 MA, it is generally considered to be in an uptrend, and when the price is below the 20 MA, it is considered to be in a downtrend.
How to Set Up the 20 Moving Average in Forex
Setting up the 20 MA in forex is relatively easy. Most trading platforms, such as MetaTrader 4 and 5, have the 20 MA pre-installed. However, if your platform does not have it, you can easily add it by following these steps:
Step 1: Open your trading platform and select the currency pair you want to trade.
Step 2: Click on the “Indicators” button on the toolbar.
Step 3: Select “Moving Average” from the list of indicators.
Step 4: In the Moving Average settings, set the period to 20.
Step 5: Click on “OK” to add the 20 MA to your chart.
Once you have added the 20 MA to your chart, you can start using it to identify trends and potential trading opportunities.
How to Use the 20 Moving Average in Forex
There are many ways to use the 20 MA in forex trading. Here are some of the most common strategies:
1. Trend Following: As we mentioned earlier, when the price is above the 20 MA, it is generally considered to be in an uptrend, and when the price is below the 20 MA, it is considered to be in a downtrend. Traders can use the 20 MA to identify the direction of the trend and enter trades in the direction of the trend. For example, if the price is above the 20 MA, traders can look for buying opportunities, and if the price is below the 20 MA, traders can look for selling opportunities.
2. Support and Resistance: The 20 MA can also act as a support or resistance level. When the price is above the 20 MA, the 20 MA can act as a support level, and when the price is below the 20 MA, the 20 MA can act as a resistance level. Traders can use the 20 MA as a reference point for setting their stop loss and take profit levels.
3. Moving Average Crossovers: Moving average crossovers occur when two moving averages cross over each other. Traders can use the 20 MA in combination with another moving average, such as the 50 MA, to identify potential trading opportunities. When the 20 MA crosses above the 50 MA, it is considered to be a bullish signal, and traders can look for buying opportunities. When the 20 MA crosses below the 50 MA, it is considered to be a bearish signal, and traders can look for selling opportunities.
Conclusion
The 20 Moving Average is a simple but powerful indicator that can help traders identify trends and potential trading opportunities in the forex market. By setting up the 20 MA in your trading platform and using it in combination with other technical indicators, you can improve your trading performance and increase your chances of success. As with any trading strategy, it is important to test the 20 MA on a demo account before using it in a live trading environment.
