The SMA indicator is the Lodestar for traders in long-term price trend analysis. The SMA is also known as one of the best tools that trading platforms give you to identify market trends. So what is SMA indicator? And what are its benefits in trading? Today we will give you the answer.
- 1 What is SMA indicator?
- 2 Types Of Regularly Used SMA Indicators
- 3 How Does SMA Indicator Work?
- 4 How to set up Simple Moving Averages (SMA)
- 5 Some Usages of SMA Indicators When Trading In Binomo
- 6 Conclusion
What is SMA indicator?
SMA stands for Simple Moving Averages which is also known as the MA line. The indicator is calculated using the sum of closing prices of x candles divided by x.
Although it is just a very simple formula, SMA still gives traders very reliable signals about price trends. Since then, traders can make decisions with high security for their trading.
Types Of Regularly Used SMA Indicators
The accuracy of the SMA indicator depends on the time period. The longer the time period is, the less the signals are given, but the higher the accuracy becomes. On the contrary, the shorter the time period is, the more the signals are given but the less the accuracy becomes. Some of the most popular SMA indicators which are used to analyze the market in Binomo are:
• SMA10: The moving average of the closing prices of 10 previous candles. Analyzing short-term fluctuations of the market.
• SMA30: The moving average of the closing prices of 30 previous candles. Analyzing medium-term fluctuations of the market.
• SMA50: The moving average of the closing prices of 50 previous candles. Analyzing long-term fluctuations of the market.
How Does SMA Indicator Work?
Depending on each stage, SMA gives us a different view of the market. This can be referred from its relative position compared to the price bar. Specifically as in the image below:
(1) When the price bar falls below the SMA => The market tends to go down.
(2) When the price bar constantly intersects with the SMA in a certain channel => The market tends to move sideways.
(3) When the price bar goes above the SMA => The market tends to go up.
How to set up Simple Moving Averages (SMA)
In Binomo, in order to set up the SMA indicator, you should do the following:
(1) Click on the Indicators menu => (2) Choose Moving Average.
An MA setting menu will appear. Respectively set items (3) as the number of candles that you want the indicator to measure. Depending on the strategies, you can customize this parameter. (4) Type of indicator, choose Simple. Finally, click Apply to finish.
Some Usages of SMA Indicators When Trading In Binomo
The SMA – depending on the stage of the market – is heavily used in different tactics. Here, we just want to introduce 2 basic strategies. However, they are very effective for you to experience.
Requirements: 5-minute Japanese candlestick chart. Setting up the SMA lines. The expiration time is 5 minutes or more.
Strategy 1: SMA30 + Reversal candlestick patterns
SMA30 is the forecast line for the mid-term price trend. Therefore, when combining with reversal candlestick patterns, it becomes a very good trading strategy. All you need to do is to focus on observing test points of the price compared to this SMA. If a reversal candlestick pattern appears, enter the trade.
• UP order = The price moves above the SMA30 (uptrend) and intersects with SMA30 + Bullish candlestick patterns (Bullish Harami, Tweezer bottom, Hammer, etc.).
• DOWN order = The price moves below the SMA30 (downtrend) and intersects with SMA 30 + Bearish candlestick patterns (Pin bar, Bearish Harami, etc.)
Strategy 2: combining 2 SMA indicator together
This is a very popular way for those who like to open long orders in Binomo. The SMA indicators used here are the short-term SMA10 and the medium-term SMA30.
Requirements: A 5-minute Japanese candlestick chart, the expiration time is 15 minutes or above,
For opening UP order = SMA10 crosses SMA30 from bottom to top and then they go in 2 separate paths.
For opening DOWN order = SMA10 crosses SMA30 from top to bottom and then they expand in different directions.
The article above is on how to use the SMA line in trading. Get familiar with it today via a demo account. In the following articles, we will share more advanced strategies using this indicator. Goodbye and see you again.