I've prepared a little example for you.
If you take a look at the attached image you might be able to understand how MAs can help you guage the trend or movements health condition.
I thought the best way to give an example of this would be to
literally show you how “i” do it, as im sure there exist many other
ways of determining the trend strenght.
Once again i implement the usage of E-MAs and S-Mas.
E-MA 5 White
E-MA 10 Red
E-MA 20 Green
E-MA 50 Blue
S-MA 100 Pink
S-MA 200 Rose
I’ve picked out a healthy uptrend which eventualy breaks off and reverses, so you can evaluate in detail the actions that have taken place and what the MAs have hinted before and after the climax.
As you can see during a healthy uptrend the price is pretty much obedient to the 5,10,20 and 50 E-MAs.
In a very good trend the price wount even touch the 50 so i personally tend to get weary when that heppens.
Think of the Price as a burglar and of the MAs as the Door he/she is trying to knock down.
If they have “intent” they will easily break through the 10 (Wooden Door), 20 (Metal Reinforced Wood)
If the cops are chasing them and they need to hide or go to jail they will definately break through 50 (Steel Door)
If there are diamonds behind the door the burglar will break through even the Great Walls of China (100 SMA / 200 SMA)
You will realize that on the eventual reverse there, the scheme sort of flips upside down, so the 50 normaly pops on top of the price first, then the 5, 10 and 20 follow and after that the 100 / 200 smas.
Once the 50 is is over together with the 10 and 20, you can comfortable say that a strong move is taking place, when the 100 and 200 smas come over the price as well and the price moves below the MAs, you've got something going and by this time you should have been long in the trade.
If you use this technique together with the ones explained in this thread:
http://www.babypips.com/forums/showthread.php?t=253
You can get some interesting results.
Regards,
E. Lang