How to use a moving average as dynamic support resistance.
Why is it said dynamic? because it measures resistance support using moving averages that float along with market changes.
Many traders use moving averages for analysis.
So it’s a good idea to also understand how to use moving averages as dynamic support resistance.
How to determine resistance dynamic using a moving average is different from the traditional way in general.
Because to determine the resistance support depends on price action and price changes that occur.
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How to use the moving average as dynamic support resistance
Why is learning to use moving averages as dynamic support resistance important?
Because there are many forex traders out there who use moving averages as key support and resistance levels, so, for example, there are 90% of traders using moving averages, this will be a momentum indicator that will give a strong signal.
How do you use moving averages as dynamic support resistance?
In the previous lesson, we already know the moving average to identify trends, where when the trend goes up the price is usually above the moving average line
Conversely, when the trend is down, prices will be below the moving average line.
And the way to use dynamic support resistance with MA as signal entries is to wait for prices to bounce closer to the MA line
Example dynamic support resistance moving average
For more details, let’s look at an example of a GBP / USD currency pair with use EMA.
And pay attention to this dynamic level of support and resistance being formed.
Take a look image example above, this is taking the example of the GBPUSD pair using the M15 timeframe.
You can adjust the timeframe as you wish.
From the example above it can be seen how the price bounced to the moving average line area several times, but he was unable to break the line.
In this example we draw the conclusion that a downtrend is occurring, so the way to enter a market that has a low risk is when prices bounce near the moving average line.
You can open short positions by placing a stop loss above the moving average line and determining the target by taking the moving average of prices on the M15 timeframe.
But if we observe, it does not always bounce perfectly on the moving average line, sometimes it passes before it finally bounces back towards a continued downtrend.
So that this sometimes becomes a weakness in using moving averages as dynamic support resistance.
Use a two moving average as a filter
To overcome weaknesses using one moving average, some traders use filters by attaching two moving averages with different periods.
So the combination of these two moving averages gives the color of the resistance zone support.
Let us take an example by choosing a GBPUSD pair with an M15 timeframe, and then we use two Exponential moving averages with periods of 10 and 20.
From the example image above, you can see that the price is a little past 10 EMA a few pips, but continues to fall afterward.
This method is one method for intraday trading, some traders use these two moving averages for intraday trading.
Using these two moving averages also provides ideas for determining dynamic support resistance, actually similar to the horizontal line resistance support method, it’s just that moving averages are floating resistance support, they dynamically follow price changes.
While the area between the two moving averages in blue is the resistance zone.
A breakout through dynamic support resistance
Using moving averages as dynamic support resistance gives you an overview of the zone of support and resistance in a downtrend or uptrend.
Thus this will help you to determine in the zone to open new positions.
You must have the patience to wait for prices to approach the resistance support zone if the price is far from that zone.
But on the other condition, the dynamic zone of resistance support sometimes breaks out.
This means that the price crosses the moving average line and this becomes a trend reversal.
We will take an example using the GBPUSD pair with an M15 timeframe.
In the example image above, we use the period 50 EMA.
We saw earlier that the downward trend occurs at the beginning of the movement, and several times the price bounces on the moving average line which in that condition becomes a resistance zone.
But what happened after it turned out that in the end, the price managed to cross the moving average line and form a new trend into an uptrend.
You can see that the area marked with a red box is the beginning of a breakout.
Then after that, the moving average line functions as a support zone.
We see that prices bounce several times at the moving average line which becomes dynamic support.
And I think you know how to make new order according to this method, yes you will open position at support line and will place stop-loss according to your risk level.
What period the most used for moving average setting?
The moving average is one of the simple indicators, but there are still many who use this indicator.
And maybe many of them are trying some of the variations in the period settings that used.
You can imagine for example 90% of traders use moving averages as their analysis tool, what will happen?
Well, they will get the same signal and will take the same actions, and this will cause prices to move because of rising trading volumes.
But the truth is that it’s not that simple, we don’t know whether all traders use the same indicators, maybe even some people use different indicators.
Back to the subject of the period, most traders use for moving average settings is 10, 20, 50, 100, 200.
The period moving average number is not a requirement, it is only the set number of most traders in using moving averages.
You can try variations of the period that you like.
And however, there is no guaranteed forex, using moving averages as dynamic support is also the same as other tools.
Past market conditions are not always the same as what happens in the future.
Advantage and disadvantage MA as dynamic support resistance
- + You can use moving averages as dynamic support resistance on all timeframes.
- + Easy to understand the use of this indicator.
- + You can use it for short-term, intraday, or swing trading.
- – In flat conditions, you might find it difficult to use this indicator as a dynamic support resistance.
- – The possibility of a breakout when the price crosses the moving average line.
- – The possibility of fake signals occurring.
Using moving averages as resistance support is another method of determining support and resistance zones.
While using the moving average is dynamic support resistance.
The difference is clear, if static is fixed, while dynamic is floating.
If you like to use dynamic moving average support resistance, you must love it with seriousness in learning it.
Most beginners like to change indicators because only one loss has occurred, but there is no perfect indicator.
And these ways of learning method becomes less effective to make a conclusion whether the method is good for the long term because forex is not an easy way to get rich quick.