Moving Average
Moving Averages are the most common used technical indicator in technical analysis. It contains the average close prices that occurred in a certain time period
There are 2 popular types of Moving Averages
1. Simple Moving Averages (SMA)
2. Exponential Moving Averages (EMA)
SIMPLE MOVING AVERAGES
If you need to calculate a Simple Moving Average (SMA) for a 20 period time frame, you need to sum the latest close price of at least 20 candlesticks, and divide the result into 20. This will allow you to obtain the 20 period SMA. The result of this will be the average of the last 20 candlesticks. It will be represented by a dot on the last candle.
When the same formula is applied to each lot of candles, the dots form a curve. The averages are dubbed ‘moving’ because they calculate a new average with each price bar.
If the curve is above the price, this represents a bearish signal. Whereas if the curve is below the price a bullish signal is represented.
Short term MA’s follow the price closer and cross the price more often then the long term MA’s.
EXPONENTIAL MA’S
An exponential moving average works similarly to a simple moving average. The difference is that exponential MAs apply more weight to more recent prices. This means that they follow the recent prices more closely. The weight applied to the most recent price will depend on the number of periods in the MA.
HOW TO USE MA’S?
Is trend above or below the trend?
MA’s used as support during up trends and used as resistande during down trends.
MOVING AVERAGE CROSSOVERS
When 2 MA’s with two different period crosses each other it may signal a trend reversal.
Downwards Crossover
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