Simple Moving Average (SMA) - KG's Technical Analysis

Observing Charts Trend

Look at this chart below :

If point C seen from point B, trend is down. But if seen from point A, trend is up. Thus, each different reference point have different result, and it represent different information that obtained just seeing a point from different observation.

Point A and B is sighting point which is distinguished by time, so when observe point C from point B, actually we observe the price in point C and compare it with the price at the time point B is formed.

Forex is Business world that driven by human as the main actors, which it work with time as reference, therefore time reference that will use adapted with business time reference, that is yearly, monthly, weekly, daily, 8 Hour, 4 Hour, 1 Hour, even 5 minutes.

Applying SMA

To observe mean of price movement GBP/USD for 1 Day ago, we can use 1 Day SMA indicator, it mean we use 1 day reference point to observe price changes, Because Charts time frame that we use now is H1 (Hourly) so to see the value of 1 day SMA we will calculate mean value of 24 candle in H1 Time frame.

In the Metatrader, applying Moving average indicator and set the period to 24, Moving Average method is simple and apply Price Weighted Closed (HLCC/4), GBP/USD chart will look like the picture below.

Let see moving pattern of SMA from point 1 to point 2, seen here SMA 24 is up trend. And from point 2 to 3 seen that SMA 24 pattern is flat. Then from point 3 to point 4 SMA 24 is up trend, From point 4 to 5 SMA 24 down trend, Point 5 to Point 6 SMA 24 up trend, and from point 6 to close market SMA 24 down trend.

From SMA 24 that have plotted in H1 GBP/USD Chart above, we have get information about daily moving chart in GBP/USD. But, to get further information we not only use information that got from one reference point, thus we need many reference point to see and get further information. 

Let see the GBP/USD movement from weekly and monthly reference point.

• Weekly reference point is SMA with 120 period in Hourly time frame, because 1 day = 24 Hour, and 1 week is 5 bussines Day and it means 1 week = 120 hour.
• Monthly reference point is SMA with 480 period in hourly time frame. because 1 month = 4 week, and 1 week = 120 hour, thus 1 month = 480 hour.

For more details, see the picture below. Weekly movement described by SMA 120 line which is colored State Blue, and monthly movement described by SMA 480 line which is colored yellow.

From Daily Movement seen that GBP/USD from Wednesday until Friday actually move only in certain range.

Let observe SMA 24 line from point 4 to point 5 and from point 5 to point 6, to the far right candle, it is seen from line that formed by SMA 24, GBP/USD only move up and down only in one range.

Then, let observe SMA 24 line from point 3 to point 4, it seen that after move sharply from point 3 to 4, GBP/USD then move to stabilize rhythmic movement or it can call consolidation .

Then in SMA 120 line day 22th until the most right candle, SMA 12o movement tend rise sharply (Up trend). Meanwhile, SMA 480 movement that describe monthly movement is flat.

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