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What does it mean when the candle hit the moving average in forex?

In forex trading, moving averages are one of the most commonly used technical indicators. They are used to smooth out the price action and provide traders with a better understanding of the trend. A moving average is calculated by taking the average price of a currency pair over a specified period of time, and it is plotted on the price chart. When the price of a currency pair intersects or “hits” the moving average, it can provide traders with valuable information about the market.

When the candle hits the moving average in forex, it means that the price of the currency pair has crossed the moving average line. This is known as a “crossover” and can be a significant event for traders. There are two types of crossovers that traders look for – the bullish crossover and the bearish crossover.

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Bullish Crossover

A bullish crossover occurs when the price of a currency pair moves above the moving average. This is a positive signal for traders, as it indicates that the price is trending upwards. It suggests that the buyers are in control and the market sentiment is bullish. Traders may interpret this as a buy signal and enter a long position.

For example, if the 50-day moving average of a currency pair is at 1.3000 and the price of the currency pair crosses above the moving average, it may be interpreted as a bullish signal. Traders may look for confirmation of the trend, such as higher highs and higher lows, before entering a long position.

Bearish Crossover

A bearish crossover occurs when the price of a currency pair moves below the moving average. This is a negative signal for traders, as it indicates that the price is trending downwards. It suggests that the sellers are in control and the market sentiment is bearish. Traders may interpret this as a sell signal and enter a short position.

For example, if the 50-day moving average of a currency pair is at 1.3000 and the price of the currency pair crosses below the moving average, it may be interpreted as a bearish signal. Traders may look for confirmation of the trend, such as lower lows and lower highs, before entering a short position.

Moving averages are often used in conjunction with other technical indicators to confirm signals and provide traders with a more accurate assessment of the market. For example, traders may look for a bullish crossover on the moving average and also check if other indicators such as the Relative Strength Index (RSI) are indicating a buy signal.

In addition, traders may use multiple moving averages to identify trends of different timeframes. For example, a trader may use a 50-day moving average and a 200-day moving average to identify both short-term and long-term trends.

Conclusion

In conclusion, when the candle hits the moving average in forex, it can provide traders with valuable information about the market. A bullish crossover indicates that the price is trending upwards, while a bearish crossover indicates that the price is trending downwards. Traders may use moving averages in conjunction with other technical indicators to confirm signals and provide a more accurate assessment of the market. It is important to remember that no indicator is infallible, and traders should always use proper risk management techniques when trading.

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