One of the most popular technical analysis indicators is the simple moving average also known as SMA, if you learn how to use these correctly they can be a very useful tool to help you to make good trading decisions, eben if you are trading penny stocks.

The 50 simple moving average, or 50 SMA, is simply the sum of the last 50 readings for each period, divided by 50, this is a moving window, as time moves on so does the average. Notice that I used the word period because this indicator works on any time period in exactly the same way.

It can be used on monthly, weekly, daily, hourly, 30 minutes, 10 minute and on whatever time period you want to monitor and trade. Although the SMA is the most widley used there is also the exponential moving average or EMA. This is a weighted version of the formula using the mathematical exponent function to give more weight to the more recent values, this has the effect of making it a slightly faster average that many traders prefer.

The reality is that it probably does not matter if you used the SMA or the EMA, what does matter however is that you use one or the other and then be very consistent with it. Do not switch between them, it is more important that you learn to trust your chosen indicator then a slight difference in its value.

The simple moving average is primarily used to determine what the current trend of the stock is, depending on the value used it could be a short term, medium term or long term trend. An important point to note is that moving averages are most useful when the stock is trending, if the moving average is flat, i.e. horizontal on your chart it can become very choppy, this is a good time to stay out of the market.

The general rule is that if the current price is above the SMA the trend is up, if below the trend is down. This is very important to know because it forms the basics of trend trading and trading with the trend. These rules also apply if you are a swing trader using trading strategies as found in the swing trader guide.

For the short term trend many traders like using a 5-8 SMA or EMA, here is a trading secret, never trade again the direction of the short term tend, actually this is really just common sense when you think about it.

Moving averages can often act as support or resistance, many traders use the 15, 21 or 30 SMA for this purpose.

There are a number of other very important moving averages that you need to know about, these are the 50, 100 and 200 SMA, and this mainly applies to the daily and weekly charts. A lot of big players in the markets, like the the mutual funds, investment banks etc use the 50 and 200 SMA as support and resistance, if they decide to buy or sell based on these you need to follow suite, the 100 to a lesser extent. These are very useful averages to watch if you trade EFT’s such as an Oil ETF.

A useful tip is that when a stock breaks through one moving average it will often move all the way to the next, for example, if a stock breaks the 30 it may move to the 50 before finding some support or resistance.

Find more useful trading strategies and tips by reading and studying top trade books

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The foreign exchange capital market is global and therefore it’s the largest fiscal market in the world. There is a bunch of cash to be earned by trading your investment funds on the foreign exchange or currency market but at the same time it is an extremely risky way to handle your funds. Just like with other forms of trading, people go into it thinking they’re going to get rich quick and that is not the case at all. The reality is that traders either get loaded slow or they lose their cash.  

So how does one ensure that you are in the percentage of winners? You can give yourself a fantastic start by using signal software such as Supremo FX, and ensuring that you avoid those five large mistakes.

1. Dreaming

Dreaming of riches is the shortest way to ruin when you’re trading currency. It is vital not to over stretch but take your profits at the level that you planned. If you’re continually wishing that the subsequent trade will be a 5 hundred pip triumph, you may simply be tempted to hold on until you all of a sudden find the market turning against you.

2. Regrets

Any time you catch yourself thinking about what might have been, stop that thought in its tracks. This goes right along with dreaming in that if you do not watch out, regret will grab your hand and lead you into ruin. If a trade turns sour, just record it and let it go. And if you believe that you cannot let go of thoughts, you might want to try a little meditation.

3. Giving up too shortly

be careful not to give up on a good system because it goes through bad times. Look to the long term results. It’s correct that infrequently the behaviour of the foreign exchange capital market changes and makes a previously workable system unprofitable, but if you suspect that is going down, simply paper trade or demo trade it for a bit. Jumping into a new system isn’t going to unravel the issue.

there isn’t any system that works a hundred percent of the time. Losses are a part of the method should be accepted as such. So long as your overall results are profitable, do not get excited by successes or unhappy by disasters. Treat them both as numbers and keep emotions out of it.

4. Acting too soon

If you are impatient you won’t be trading at the perfect time and your results will suffer. Impatient currency exchange traders don’t wait for the signals to be right but jump in and open a trade because they believe things may be about to go their way, or because they have not had a trade opportunity for a while and they are bored. Big mistake!

5. Acting too late

Hesitation, on the other hand, usually occurs because you do not trust your currency trading method. You’ve got the signals but you need to wait for another movement or another pointer before you act. If you frequently find yourself in this situation, you could need to test your system further or cut back your position size so you do not feel so afraid. Fear will hold you back from making your move in the forex capital market at the right time.