There are numerous indicators that are based on support and resistance levels. The first of these to be considered here will be the moving average.

The moving average indicator is based on the concept that certain price levels are visited repeatedly by currency pair prices. Trading platforms can be configured to take any number of price bars and compute the average value of those bars. The software will then draw a line that meanders along with prices for any selected time period.

The theory involved is that prices will eventually return to the moving average. If prices are considerably below the moving average, the indication is to go long. The trade would go short if prices were above the moving average. If prices hover close to the average for long periods, this usually indicates a sideways market that is best avoided entirely.

The two main types of moving average indicators are the simple moving average and the exponential moving average. The exponential variation attaches more significance to the most recent price activity. The choice, if one must be made, comes down to a matter of trader preference. Some traders will combine the two.

Moving averages can be used in conjunction with manually drawn support and resistance lines to supply further confirmation of the validity of an anticipated trade. For example, a key horizontal support/resistance level occurs naturally at the opening price of the trading session. Seeing a moving average turn sharply through one of these levels would give a trade in that direction an additional edge.

Also, as is the case with manually drawn support/resistance levels, it is imperative to observe moving averages over different time frames. A simple moving average setting of 50 on a one minute chart only returns an average price for the last 50 minutes, but the same setting on a daily chart supplies an average price for 50 days.

It is also possible to display multiple moving averages for one time frame on the same chart. Experiment with this. One popular method uses three moving averages: the first showing the last 20 bars, the second showing the last 50 and the third showing the last 200 bars. Where the faster moving averages cross the slower ones can often indicate a trade entry or exit.