How To Trade - Moving Average for Support & Resistance and How Does It Work

Good 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 price dips and tests the moving average or sell if price rises and touches the moving average.

If price is on an up trend and starts to retrace, then most traders might wait to buy at a better price when the price hits a support level. Traders will sometimes use the MA to determine the support level. A buy signal is generated when price hits the MA, turns and starts moving in the upward direction. The signal is confirmed when price closes above the MA. Because many traders use the moving averages to generate trading signals, price will normally react to these levels.

If price is on a down trend and starts to retrace, then most traders might wait to sell at a better price when the price hits a resistance level. Traders will sometimes use the MA to determine the resistance level. A sell signal is generated when price hits the MA, turns and starts moving in the downward direction.