Moving average
Definition
A moving average (MA) is a line on the chart where every point equals the average price over a set number of recent candles. It smooths out noise and shows the direction of the move: price above a rising line means an uptrend, below a falling line a downtrend. In binary options a moving average is most often used as a direction filter, for example EMA 50 on M1.
How a moving average is built
The indicator takes the closing prices of the last N candles, averages them and plots a point. On the next candle the window shifts forward by one candle, hence "moving". The larger the period N, the smoother the line and the later it reacts to a reversal.
| Type | How it counts | Behaviour |
|---|---|---|
| SMA (Simple) | plain average of all candles in the period | smooth, lags |
| EMA (Exponential) | more weight to the latest candles | reacts faster, closer to price |
| WMA (Weighted) | weight falls linearly from the latest candle to the first | between SMA and EMA |
In practice binary options almost always use the EMA: with an expiration of one or two candles the SMA's delay costs the trade.
How to read it
- Slope of the line is the direction of the trend. Line rising and price above it: look for buys. Line falling and price below it: sells.
- Distance from price is the strength of the move. Price far from the line means an impulse, usually followed by a pullback to it.
- A touch of the line is a dynamic level. In a trend price pulls back to the EMA, bounces and continues. This is the with-trend entry point.
- Price sawing the line is a flat. Crossings back and forth without follow-through: no moving average trades at that moment.
Trade example
EUR/USD, timeframe M1, EMA 50 pointing up, price trading above it. After three green candles a red one comes, price drops to the line and touches it. The next candle opens above the EMA: this is a buy entry with an expiration of 2–3 minutes so the bounce off the line has time to play out.
No trade is opened against the slope of the line: even if an oscillator shows overbought, in an uptrend by EMA 50 only buys are considered. This rule cuts half of any oscillator's false signals; more in the RSI article.
Moving averages in the terminal
In BinoView Supercharts a moving average is added from the indicator list with a choice of type and period. More often it is built into the bots themselves: Flip Strike's higher-timeframe filter runs on EMA 50, Impulse Pro's trend filter is EMA 50 too, and Pocket Dashboard combines the readings of several moving averages on M1, M5 and M10 into one status. Ready strategies with EMA 50 are covered in the posts on Bollinger Bands + Stochastic + EMA 50 and Pocket Dashboard.
How it differs from a level
A support or resistance level is a horizontal line drawn through past extremes; it stays put. A moving average moves with price, which is why it is called a dynamic level. A bounce off a horizontal level is a reversal trade; a bounce off a moving average in a trend is a continuation trade. When both coincide, for example price pulls back to EMA 50 and to a broken resistance at the same time, the signal counts as strong.
Frequently asked questions
Which moving average period should I choose?
For a trend filter on 1-minute charts the usual choice is EMA 50: slow enough not to twitch on every candle, fast enough to keep up with the move within a session. Short periods (8–20) serve as signal lines inside bots, long ones (100–200) give direction on higher timeframes. The period is matched to the timeframe, not the asset.
What is the difference between EMA and SMA?
The SMA (simple) takes a plain average of all candles in the period; the EMA (exponential) gives more weight to the latest candles, so it turns earlier and hugs price more closely. For short expirations this matters: the SMA lags by several candles. The strategies in our blog almost always use the EMA.
Can I trade on a moving average alone?
A crossover of price and the line gives many false entries in a flat, where price saws the line back and forth. A moving average is used as a filter: its slope tells you which direction you may enter at all, while the entry moment comes from an oscillator, a candlestick pattern or a bot signal.