How Do You Pick Moving Averages – USD/JPY?
Skerdian Meta • 2 min read
When I trade I usually use 4 or 5 moving averages, the 20 simple moving average (SMA), 50 SMA, 100 SMA, 100 smooth MA and 200 smooth MA. These are the technical indicators I use on my chart, besides trend lines.
So, I was looking at the USD/JPY chart this morning and saw that the 20 SMA I was using didn´t exactly match the support and resistance levels, meaning that it didn´t exactly provide support and resistance.
I thought that maybe the smooth or the exponential MAs might be doing that job so I checked them as well, but they looked even worse, the price didn’t find support or resistance at those MAs either.
So I had to check the last moving average setting on my MT4 platform, the linear weighted (LW) moving average. I have never used this moving average to be honest, but the moment I placed it on my chart it looked a lot better than the other ones.
The 20 SMA doesn´t give much indication on the monthly chart
The LWMA works better as support & resistance
As you can see on the monthly charts above, the 20 SMA looks way off the support and resistance levels, while the 20 LWMA has provided resistance and support many times, particularly in recent months. As you can see, right now it is providing support and the price hasn’t been able to close below it, despite the brief breach last month.
Back to trading in real time, this makes you think that the long-term uptrend in this forex pair is still intact. But, as I mentioned in March´s monthly review, I expect the price to have another go lower, (retrace) probably up to 1.10 before making the next move higher above. 115 comes to mind.
So, that´s how I choose moving averages, I try them all (the popular ones since more people look at them, making them more likely to function), see how well they have worked in the chart history in different timeframes and pick the ones that have worked best.