Let’s look at how to use moving averages as dynamic support and resistance levels.
Another way to use moving averages is to use them as dynamic support and resistance levels.
We like to call it dynamic because it’s not like your traditional horizontal support and resistance lines.
They are constantly changing depending on recent price action.
There are many forex traders out there who look at these moving averages as key support or resistance.
These traders will buy when the price dips and tests the moving average, or sell if the price rises and touches the moving average.
Let’s look at the 15-minute chart of GBP/USD and pop on the 50 EMA. Let’s see if it serves as dynamic support or resistance.
It looks like it held really well! Every time price approached 50 EMA and tested it, it acted as resistance and the price bounced back down. Amazing, huh?
One thing you should keep in mind is that these are just like your normal support and resistance lines.
This means that the price won’t always bounce perfectly from the moving average. Sometimes it will go past it a little before heading back in the direction of the trend.
There are also times when the price will blast past it altogether. What some forex traders do is that they pop on two moving averages, and only buy or sell once the price is in the middle of the space between the two moving averages.
You could call this area “the zone.”
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