Foreign currency and moving averages

When it comes to analysis of the movements on foreign currency, you must be coming to the opinion that a lot is done and a lot of trends and patterns appear and are looked at. That is correct!

Another thing that is often looked at and referred to is what is konwn as 'moving averages'.

These use to signal a trend. It is the average price over a certain period of time, which of course can change but is usually over some sort of set interval in the past.

Now clearly looking at the average price over time then there are different trends that appear.

And these will vary very much with the timescale that is set, take a very short time period and a longer one and you might get opposite trends appearing - general downward or upward.

Standardly a trend might look at around thirty weeks of data in order to be meaningful enough to ride out any basic volatility and look for underlying trends.

There is another figure that is called the golden cross.

What just is this almost religious sounding, mythical entity of a golden cross in the financial foreign currency money markets?
Well the answer is that this is the price that breaks through the moving average, and indicates the point where that prevailing trend has been broken.

Of course the moving average as it is on historical data by definition has to lag behind what actually happens in the market, however they can be useful to confirm your suspicion as to whether a trend has been broken or not for instance.

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