Using Moving Averages to Identify Trends
One of the most useful ways to apply moving averages is to help determine the direction of the trend.
The simplest method?
Just plot a single moving average on your chart.
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If the price consistently stays above the moving average, it typically signals an uptrend.
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If the price tends to remain below the moving average, it suggests a downtrend.
Simple enough, right? But there’s a catch…
Why One Moving Average Isn’t Always Enough
Let’s say USD/JPY has been in a strong downtrend. Suddenly, a major news report causes the price to spike upward.
Now, the price sits above the moving average. You might think:
“Looks like the trend is reversing—time to buy big!”
So you go all in…
But then—bam! The price resumes its downward move. Turns out the spike was just a temporary reaction to news, not a real trend reversal. You got faked out.
The Smarter Approach: Use Multiple Moving Averages
To avoid these kinds of fakeouts, many traders (and we recommend you do this too) use more than one moving average.
By plotting two or more moving averages on your chart, you can get a clearer picture of the trend direction.
Here’s how it works:
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In an uptrend, the faster moving average should be above the slower one.
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In a downtrend, the faster moving average should be below the slower one.
Example: 10-period vs. 20-period Moving Average
Let’s say you're looking at the daily chart of USD/JPY and you’ve plotted:
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A 10-period SMA (faster MA)
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A 20-period SMA (slower MA)
In a solid uptrend, the 10 SMA will stay above the 20 SMA—a clear visual cue that the market is moving higher.
This method gives you a more reliable read on the trend and helps reduce the chances of getting fooled by short-term volatility.
Bonus Tip: Add More MAs for Extra Clarity
You can take this even further by adding more than two moving averages—just make sure they’re in the correct order:
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In an uptrend: faster MA on top, slower ones underneath.
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In a downtrend: slower MA on top, faster ones below.
This layered setup makes it easier to confirm whether the market is trending or ranging and can help you make better decisions about going long or short.
Combine With Other Tools
Want even stronger signals? Use moving averages alongside trendlines and other indicators. Together, they can give you more confidence in your trade entries and exits.