We all know what they represent, but very few of us know what they ‘really’ represent! Ok, let me make things very simple for you! When you look at a chart, under a certain time-frame, remember this: There is only one moving-average that ‘represents’ that chart at any particular time! The gradient of that moving average is key to those that support it!

For example, if the 600 exponential MA is the ‘representation’ for the 15mins EURSD chart this week, then at any given time this week, the gradient of this MA is watched by those(in the majority) that support it! If they want the gradient of the MA to remain positive then whenever price falls below the MA(therefore, reducing the gradient of the MA to zero and possibly into the negative zone) these players will come into the market and push price up to a level so that the gradient of the MA remains positive again!

What will happen if they do not keep the gradient positive(in the direction they want)? Other players will jump into the SELL-WAGON and push price further down. The key thing here is to identify the representation-MA!

I will provide some examples! This chart below showS the representation MA for a certain time-frame! Do you see how those supporting the MA caused price to SPIKE upward each time the EURUSD came close to the MA? To keep the direction up for a given time, they will have to PUSH PRICE up to a level that dominates all price levels within a certain range(usually the range that defines the MA). By doing so, this new price level will work its way into the averaging formula and keep the gradient of the representation-MA positive until there is the need to do so again.

So, a key thing to do is to find the ‘elusive’ representation-MA and ask yourself whether the MA is about to assume a local-maximum or local minimum. Find the last turning-point of the MA and estimate where the next turning point will be. If you expect it to happen with the next x-periods, then price will have to move accordingly to make it so.

Maximum gradient of Representation-MA

Another thing about the REPRESENTATION-MA, you should watch is its gradient range: The gradient of the representation-MA is between 30 and 45 degrees for steep-uptrend and 330 and 315 degrees for steep-downtrend! So, if for a given uptrend the gradient is 40 degrees, one can expect price to RANGE/(REMAIN FLAT) or fall in order to reduce the gradient! The same argument applies to the downtrend case!

Notice that EURUSD will have to FALL in order to get the gradient of the BLUE-MA within the 315-330 range! So any push up currently may see a SHARP-FALL later on when the players supporting that representation-MA come into the market to keep the gradient NEGATIVE! The chart above show a local-maximum for the BLUE-MA( a good approximation to the representation-MA). Question: Are we going to see a local-minimum soon(close to this local maximum)? If the answer is no, then expect price to fall or remain below this MA for some time.