We previously talked about how one of the moving average parameters is known as the period, and this is basically how many prices will be considered in each calculation.
For example, if the period is 50 then it will average the last 50 prices, and if the period is 200 then it will average the last 200 prices. Now the question is what period should we use?
There are different ways to choose the periodicity of the moving average but for now, let’s use the market conventions.
Take the numbers: 10, 20, 40, 50 for the foreign exchange market, and 100 and 200 for the stock market.
Now the third direction in the markets is that of the sideways, which is also known as the range or trendless market.
During a range, prices will fluctuate up and down the moving average triggering false signals, and as a result, these false signals will have a negative effect on our account. Right?
So, during a range, we should try to make sure that we don’t use the moving average!
Now you should know when to use the moving average!
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