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When a market is in a strong trend, any bounce off a moving average presents an opportunity to join the trend until price closes below the 200-SMA. Moving averages can be a simple tool to define support and resistance in the forex market. A close below the 200-day MA alerts traders to the possibility of a reversal in the long-term trend. The EUR/USD chart below, depicts the slowing down of upward momentum in the long-term trend as price drops and closed below the 200-day moving average. However, moving averages are also utilized by fund managers and investment banks in their analysis to see if a market is nearing support or resistance or potentially reversing after a significant period. They help traders to define the trend and potential entries in the direction of the trend. Moving Averages are most popular to new traders, for good reason. This will prevent traders from trying to find the “perfect moving average” and will help traders to stay focused on whether the trend is starting, accelerating, or slowing down. Pro Tip: It is best to stick to a few specific moving averages. Price approaches the 200-day MA before bouncing back up in the direction of the long tern trend. The EUR/USD chart below shows the 200-day moving average acting as support and a clear trend filter. The long trading bias remains until the moving averages reverse or the target is hit. In other words, when the shorter moving average crosses above the longer, slower moving average, this can be viewed as a cue to enter long. Often traders will use more than one moving average because two moving averages can be used as a trend trigger. Moving averages are simple to use and can be effective in recognizing trending, ranging, or corrective environments. R ead our article on moving averages for detailed examples on how to calculate both the SMA and EMA. Therefore, traders have a decent selection of moving averages to choose from, some of the most popular include: Over time, formulas have been altered in an attempt to better track price. There are a number of moving averages each with different formulas. Traders interested in Fibonacci numbers prefer to replace the popular moving average numbers with Fibonacci numbers. The most popular simple moving averages include the 10, 20, 50, 100 and 200. The EMA calculation attributes a higher weighting to recent price moves compared to the SMA, which takes a general average over the specified time period. While the most popular Exponential Moving verages (EMA) look very similar to the SMAs, the actual data points that make up the EMA will differ due to the way it is calculated. Traders often use the smaller, faster moving averages as entry triggers and the longer, slower moving averages as clear trend filters. There are a number of popular Simple Moving Averages (SMA), however, each will be determined by trading style and the desired time frame when trading. Moving averages are extremely popular due to its easy-to-use nature and multitude of uses when trading.