# A Guide to Maximizing Profits with a Gold Moving Averages Strategy

When it comes to Gold trading, you as an investor should always be looking for profitable trading strategies.

On the other hand, it’s our job as a gold trading platform, to provide you with effective gold trading strategies that help you maximize returns.

Keeping in line with our commitment, we’ve brought you a very popular trading strategy mostly used by Gold tycoons worldwide.

Today, we’re going to break down the gold moving average trend following the system.

This strategy combines moving averages and a trend-following system to maximize profits.

Stick through till the end as we’ll be sharing the best way to use this Moving Average Trend Following system for profitable returns.

But first, let’s give you the basics.

## What is a moving average?

A moving average is a method used to analyze the average value of a particular variable over a set number of data points.

For instance, you as a trader can take Gold prices in the past 10 days and divide them by 10. This would give you the average Gold price over the last 10 days.

This average can be taken over a specific period such as 10 days, months or even as little as 30 minutes!

Moving averages are helpful in making sense of price charts. You can look at the direction of a moving average to learn about its price direction.

If it’s angled upward, it means the price is moving or has been increasing in the recent past.

If it’s angled downward, it indicates that the price will move downward.

When the average is moving sideways, the price depicts a range.

Traders can also use moving averages for support and resistance. A 50-day, 100-day, or 200-day moving average could be a support level during an uptrend. This is because the average acts like a floor (support), of which the price bounces off.

In a downtrend, a moving average could act as a resistance, acting as a ceiling where the price hits and starts dropping. But, the price won’t always follow the moving average in this pattern, and it may run through it slightly or stop and reverse before reaching the ceiling or floor.

## What is a trend-following system?

Trend following is a systematic investment strategy. Its purpose is to make money from price trends in different financial markets and assets. This includes commodities, currencies, government bonds, and interest rates.

Trend-following strategies seek to gain from the market’s tendency to trend, and it does this by consistently applying rules-based trading systems to different markets.

Trading systems are structured to identify the beginning and end of price trends, and this is done while sizing positions proportionate to price trend strength and market riskiness.

## Types of moving averages

There are different moving average systems to use when spot trading gold. Your choice will determine how you follow trends and make trends. That said, these are the two types of moving averages:

### Simple moving average (SMA)

This straightforward technical indicator is obtained by summing recent data points in a given set. The sum of the data points is then divided by the number of periods. Traders use the SMA indicator to signal when to enter or exit a market.

Investors use the SMA indicator in financial markets to find buy or sell signals for gold. The SMA helps spot support and resistance prices to get signals, which lets market players understand trends and where to enter or exit a trade.

When generating the SMA, you must calculate the average by summing prices over a chosen period. Next, you should divide the total by the number of periods. This information will then be plotted on a graph.

The Simple Moving Average formula is written as:

**SMA = (A1 + A2 + ………………………An) / n**

Where:

- “A” is the average in period n
- “n” is the number of periods

### Exponential Moving Average (EMA)

The EMA leans towards the most recent price points, allowing it to be more responsive to recent data points. An exponential moving average is likely more responsive to recent price changes. This is unlike the simple moving average, which provides equal weight for all price changes in the given period.

You need to use these three steps to calculate the EMA:

**Calculate the simple moving average for the chosen period**

Every EMA needs a starting point. The SMA is used as the launch point for the previous period’s EMA. It’s obtained by taking the sum of the security’s closing prices for the chosen period. After that, the total is divided by the number of periods.

**Calculate the multiplier for the exponential moving average**

The formula for calculating the multiplier is:

**Multiplier = [2 / (Selected Time Period + 1)]**

For instance, if the time period in question is 10, the multiplier will be calculated as follows:

**Multiplier = [2 / (10+1)] = 0.1818**

**Calculate the current exponential moving average**

The final step calculates the current EMA. It’s done by taking the period from the first EMA until the most recent time period. The calculation uses the price, multiplier, and the previous period’s EMA value. It’s computed using this formula:

**Current EMA = [Closing Price – EMA (Previous Time Period)] x Multiplier + EMA (Previous Time Period)**

The weighting given to recent price data is higher for a longer-period EMA than a shorter one. A multiplier of 18.18% is added to the recent price points of a 10-period EMA. Alternatively, a 9.52% multiplier is applied for the recent price points of a 20-period EMA.

## How to set up and use a moving average system

A moving average is the average price of a security in a specific time period. Let’s use the popular 50-day moving average for this example. A 50-day moving average is calculated by adding the closing prices of a security over the past 50 days.

The result is then divided by the number of periods, i.e., 50. To keep calculating the moving average daily, swap the oldest number with the most recent closing price.

No matter the length of the moving average you’re plotting, the calculation stays the same. The change is in the number of closing prices you use.

For instance, a 200-day moving average is the closing price for 200 days added together and divided by 200.

You should also know that you need to have a specific number of closing prices to calculate the moving average.

If the security is brand new or just a month old, you can’t calculate a 50-day moving average, and this is because you won’t have enough data points.

Additionally, keep in mind that closing prices aren’t the only way to calculate MAs. You can also use opening, weekly, monthly, and intraday prices.

## What is the best way to use a moving average for a trend-following system?

A moving average is a trend-dependent indicator that generates signals with a lag, regardless of the type. It’s a feature that can annoy most traders but is useful when trading with gold price trends.

Like most technical indicators, moving averages shouldn’t be used solely. You can combine the RSI indicator with a moving average to generate better trading signals, and this will help you make better trend predictions and increase your overall profit.

## Final Thoughts

You can double-trade profits by building an effective moving average trend-following system. Combined with our trading platform, the financial sky’s the limit.

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