Moving Average Support and Resistance

Moving average support and resistance, it is possible for price to change direction around these levels. This is where a moving average acts as support in an uptrend and act as resistance in a down trend.

A short term moving average such as a 20 is a good indicator if the trend is short and a long term moving average such as the 200 is a good indicator if the trend is more sustained. In fact because the 200 is such widely used, it might offer support and resistance for no other reason, kind of like a self-fulfilling prophecy that all traders should be aware of.

Most traders use one moving average or another but without really realizing the potential of these tools to identify levels of support and resistance. As we will see in the chart below the moving average (black line) smooth’s out the closing price of the past data while also allowing a trader to clearly identify areas of support and resistance.

Here the 20MA acts as resistance three times in the down trend and price fall again after. Then when the price finally broke through we see the 20MA acting as support as the trend start to move up.

The forex is not an exact science and drive by emotion as much as anything so don't always expect price to sit nicely on the moving average all the time it might well shoot through before coming back to it. Or it might not quit reach the moving average, so instead of exact levels a trader should be looking more at support and resistance areas around the moving average.

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