Just about anyone is familiar with what an arithmetic average is. You take some numbers, add them together, and divide them by the number of members in the series. A moving average is a technical indicator in which the values that go into the calculation of the average “move”. In other words, instead of fixed set, we take a changing series of numbers, and add them up as they are supplied to us, deriving the value of the indicator.

Simple Moving Average

SMA is the arithmetic average of prices calculated at the period specified by the analyst. For example, an 100-day SMA is calculated by taking the sum of prices over a hundred days, and diving them by the same number.
The SMA is a very common tool but it is rarely useful by itself alone. As its name suggests, it is easy to use and understand, and a smart school kid should have no problem making use of it. It is most often used as the signal line in a trading strategy, with the purpose of establishing divergences and creating analyzing crossovers with more sensitive moving averages.

Exponential Moving Average

The exponential moving average is similar to the simple moving average, beyond that it attaches a higher weighting to data from the latest time period, and is more sensitive to price vents in the nearest time frame.
The simplest of using these two MAs is combining them together and using the EMS as the signal generator. When the EMA rises above the SMA, the signal is to bullish, and in the opposite case a bearish signal would be devised.
In addition to these two, there are a large number of other, more complicated moving averages that are sometimes used by traders depending on the type of market, and trading goals. Still, you don’t need a howitzer to shoot a donkey: mastering these by type should be enough for the forex newcomer.

Next step: Fibonacci Retracements