What are simple moving averages

Simple moving averages, also called SMA’s, are lines which represent the average of a price over a specific period. With the OFS Trading System we apply the simple moving averages to judge whether a trend is really suitable enough to be used in search of good quality trade setups. In addition to this application we also use the simple moving averages to determine the support or resistance level.

The simple moving averages can be quite easily adjusted to the trading platform. Therefore you’ll first have to select “technical indicators” and then you’ll have to pick “simple moving averages”. Finally you can fill in the number of periods and indicate the colour yourself.

What are simple moving averages?

Simple moving averages, also called SMA’s, are lines which represent the average of a price over a particular period. Suppose you examine the 15-minutes chart and you select the 50-SMA, this line will consequently reproduce the average of the last 50 candlesticks. Since the time frame is one hour, the price to be reproduced will be based on the last 12,5 hours (50x15m=750 minutes).

Simple moving averages to look for good trends

The OFS Trading System applies three simple moving averages to look for sound trends and at the same time to determine the right entry moment within a trend. These are the 20 SMA, the 30 SMA and the 50 SMA. So these lines indicate the average of respectively 20, 30 and 50 candlesticks. Through these simple moving averages we should be able to determine whether a trend is to be considered as being really sound or not. To get even more explanation on this subject, you’re invited to download the free e-book about the OFS Trading System.

Simple moving averages to determine the support or the resistance level

With the OFS Trading System we use the same simple moving averages to determine the support or the resistance level. According to the conditions of the OFS Trading System in case of retracements the price will frequently return to the area between the 20 SMA and the 30 SMA if there is a sound trend. On the below shown chart you can clearly see this principle:

simple moving averages

On the chart you can clearly distinguish the three SMA-lines, namely the black line (20 SMA), the red line (30 SMA) and the blue line (50 SMA). There is an uptrend and after a new swing high has been reached, the price will finally return to the area between the 20 SMA and the 30 SMA.

In case of a sound trend simple moving averages can serve as reliable means to determine support and resistance levels. Nevertheless you could already have read in the article “Support and resistance”, that it’s sensible to obtain more confirmations, so that’s why we associate these simple moving averages with oblique and straight support/resistance lines. In the free e-book about the OFS Trading System this is extensively being clarified.

The most applied simple moving averages

So far I mainly showed how the simple moving averages in case of the OFS Trading System are being used to look for sound trends and to determine the support or resistance level. In actual practice a lot of forex traders are also employing other adjustments and combinations when it’s comes to the simple moving averages.

Even in case of simple moving averages in actual practice round numbers are often serving as support and resistance. The simple moving averages which in general are watched by forex traders most of the time, are the 20 SMA, the 50 SMA, the 100 SMA and the 200 SMA. When the price is approaching one of these levels, you’ll consequently see in actual practice that price reactions will be frequently developing.

The combination of simple moving averages, which are being used by a great number of forex traders to look for trends, are the 3 SMA, the 20 SMA and the 65 SMA, in which case these lines should be moving parallel to each other in the right order and they should not be positioned too close to each other.

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