Moving averages are very popular tools used in technical analysis. There are many types of them and they use different calculations so their readings differ. Today we will talk about two moving averages, Arnaud Legoux and Least Squares.
Setting up the chart
First, you must be logged in to your IQ Option trading account. Then, you have to decide on the asset you are going to trade, the amount of money you wish to invest, the type and the timeframe of the chart and when to exit the trade.
In order to add an indicator to the chart, you must click on the indicators icon and search for what interests you. Today, we are talking about moving averages, so find them and then, the Arnaud Legoux Moving Average (ALMA) and Least Squares Moving Average (LSMA) will be visible on the list on the right side. Once you click the name and set parameters it will be attached to your price chart.
Arnaud Legoux Moving Average
Indicators come with default settings which, if needed, might be adjusted. There are three elements in the ALMA. The period, which is 9 by default. The offset is 0.85, and the sigma 6.
You can experiment with changing the ALMA period according to your skills and methods. The offset and sigma, I recommend leaving as default.
Arnaud Legoux is an indicator that helps to determine the trend in the market, its direction, reversals, breakouts, and support/resistance levels. It applies moving average twice, in two directions, once from left to right and the second time from right to left. This results in less noise and more reliable signals than from standard SMA.
Compare the ALMA and the SMA with the same period of 9 on the chart beneath.
The Arnaud Legoux follows the trend. It rises when there is an uptrend in the market and falls during the downtrend.
The forthcoming reversal or breakout can be identified when both, the price and the indicator move upwards and the asset‘s price climbs above the Arnaud Legoux line. Soon, both start to fall. When both, the price and the indicator's line fall and the price goes under the ALMA, we can expect the trend will soon reverse and move upwards.
You can trade using the ALMA in various ways. For instance, you can rely on the fact, that through a strong uptrend the price stays above the indicator's line and through a strong downtrend below it. You can base your trading on retracement and breakouts. And you can add another indicator to the ALMA, for example, the Stochastic to identify the oversold and overbought zones.
Least Square Moving Average
The default settings for the Least Square indicator are period 25 and offset 0. Remember, you can adjust them if needed.
The Least Square (LSMA) is based on the least-squares system. It continues the movement in the previous direction even after the trend exhausts. Thus, it shows what could be the situation in the market if the trend moves in the same direction.
It is possible to recognise the bullish and bearish trends with the LSMA. Remember, there is never a guarantee the signals received are accurate.
You may consider opening an UP trade when the Least Square is rising and the price stays over it and increases. A DOWN position can be opened when the indicator's line is falling and the price moves below it and decreases.
Another method of trading with the Least Square requires you to add another LSMA but with a different period. The signals will be produced on their crossovers. Whether it will be an UP or DOWN transaction, depends on the trend direction.
Below you will find an exemplary chart with two LSMAs attached. One has a period of 20 and the second one of 50.
Moreover, you can combine the Least Square with other technical analysis tools.
There are many types of moving averages. Today, you have learned about two of them, the Arnaud Legoux and the Least Square. They can be of great help in your trading. You will be able to identify the trend and its direction as well as reversal points. You will get trading signals based on them.
Be aware of the fact, that no indicator is perfect and sometimes false signals are generated. Be cautious and use an additional method of confirming the signals.
Check how the Arnaud Legoux and the Least Square moving averages behave in the IQ Option demo account. You will have time to practice using them in trading without the need of worrying about losing your money. The demo account is completely free and supplied with virtual cash. Move to the real account to make profits when you feel ready for it.
Best of luck!
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