The above image is what we are going to set up, and we’ll also look at what it is telling us

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What we are looking at in the above image is the start of a crossover. Setup a 5 SMA and a 10 SMA and pick two different colours. In all of my charts, we make the habit of using the hot colours for a fast forex indicator, and cold colours for slow forex indicators. Since we are only using two moving averages we went with red for the 5, and 10 for the blue.

What moving average forex indicator tells us

5 and 10 moving average forex indicator

First, let us look at the difference between the two, and this applies to every forex indicator.

The shorter the period set, the quicker the indicator responds. So look at the 5 (red) and compare it to the 10 (blue) indicator lines. You’ll see that the red responds a lot quicker to the market movement than the blue.

So a fast forex Indicator will allow you to get into a trade earlier and leave later, giving more profits. But the downside is that it is less reliable so you will likely have more losing trades.

A slower forex Indicator is generally more reliable, increasing the number of profitable trades. The downside is that you enter trades late and leave them late, decreasing your profit margin per trade.

This rings true for all forex indicators, and finding the right balance in speed (period setting) is as important as everything else and is determined by the strategy and tested in backtesting to make sure you have a good balance, which yields a high enough success rate and a better average profit than average loss.

Moving average cross over

5 and 10 moving average forex indicator

Same image, repeated so you don’t have to keep scrolling! So by using two different speeds, in this case, a 5 and a 10 moving average, we are looking for turning points in the market.

When the faster moving average (red) crosses the slower moving average (blue) we are predicting a change in direction of the market. At the point where it crosses, we are basically saying this will be a new low or a new high.

We enter a position based on the direction of the faster-moving average. So in the top example, the first crossover is the red going below the blue signaling a sell. That doesn’t last long, and our forex indicators then tell us to buy, which also fails! Then we get another sell signal as the red goes below the blue again and that would be a massive win!

So on its own, in the above example we would have suffered two small losses and then a large win. Now you cannot base a system on such a small sample size, so we encourage you to get a demo account at least, set up these two indicators and have a look at more examples.

DO NOT TRADE IT YET!

We have basically only shown you potential entries without any sort of confirmation of direction, we also haven’t shown you correct stop loss, take profit and many other things that go into a system.

Feel free to demo account test, but it is not recommended to try real money on this yet. Have a look at the other indicators first to see how we put it all together.