Moving Averages

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Moving Averages

Post by Evgenia Gencheva on Wed Oct 12, 2016 2:21 pm

Moving Averages

This is one of the oldest and most popular tools of technical analysis. Moving average is the average price of the instrument for a certain period. The period for calculating the moving average is at the discretion of the analyst. For example, 50 days. It is important to know that the calculation of the moving average is only possible in the presence of all the data for the specified number of periods. Or if we choose 50 days moving average can be determined only after the chart show the price for 50 days. Moving average reflects the coincidence of investors' expectations for the period. Used for monitoring changes in prices. Usually investors buy when increasing the price of securities above the moving average and sell when fall below it.

- Simple moving average (Simple Moving Average). In calculating the simple moving average, is first collected on the price of the instrument the last n time periods, and then divided by n. For example gather closing prices for the past 50 days and divide their sum by 50. So we get the average price of the instrument for those 50 days. Or formula is as follows:

SMAn - Simple moving average for n period.
P - Price for each respective period.
n - number of periods.

Usually the traders use two or three simple moving averages, each for a different number of periods example: SMA 50 = 50, SMA 100 = 100 and SMA 200 as 50, 100 and 200 are periods of time. The intersection is taken as a signal change of the trend.

The advantages of moving averages are that it is easy to determine the direction of the trend, as each price change is preceded by a corresponding breakthrough in the moving average curve. Also it can be used as lines of support and resistance.

Weighted Moving Average, calculated using the formula:

Exponential Moving Average, whose formula is:

Evgenia Gencheva

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