This tutorial discusses Simple Moving Average technical indicator, Simple Moving Average Formula,Example Of Simple Moving Average,Description of Simple Moving Average,Usage of Simple Moving Average,Disadvantages of the moving average method
Moving Average is probably one of the simplest and most popular indicators in technical analysis (including the Forex market).
Moving average refers to the class of indicators following the trend, it helps to determine the beginning of a new trend and its completion, its force angle (speed) can be determined from its angle of inclination, it is also used as a basis (or smoothing factor) in a large number of other technical indicators . Sometimes the moving average is called the trend line.
Where Pi - Prices in the market (Prices are usually taken Close, but sometimes they use Open, High, Low, Median Price, Typical Price).
N - the main parameter - the length of the smoothing or the period of the moving average (the number of prices included in the calculation of the sliding one). Sometimes this parameter is called the moving average order.
A moving average with a parameter of 5.
A simple moving average is the usual arithmetic mean of the prices for a certain period. The moving average is a measure of the equilibrium price (the equilibrium of supply and demand in the market) for a certain period, the shorter the moving average, the less the equilibrium is taken over a shorter period. Averaging prices, it always follows a certain lag behind the main market trend, filtering small fluctuations. The smaller the parameter of the moving average (say that the moving average is shorter), the faster it determines the new trend, but simultaneously makes more false fluctuations, and vice versa, the larger the parameter (say the long moving average), the slower a new trend is determined, but fewer false fluctuations occur.
The use of moving averages is quite simple. Moving averages do not predict changes in the trend but only signal about the trend that has already appeared. Since moving averages are trend following indicators, they are better used in trend periods, and when the trend is not present on the market, they become absolutely inefficient. Therefore, before using these indicators, it is necessary to conduct a separate analysis of the properties of the trend of a particular currency pair. In the simplest form, we know several ways to use the moving average.
Note 1: In the market in a state of a trend, it is better to use a shorter sliding one, in the market in the outset it is better to use a longer sliding one, as giving less false signals.
Note 2: there are a lot of more effective modern variations: exponential moving average, weighted moving average, there are also a number of adaptive moving averages AMA, KAMA, Jurik MA, etc.
Risk warning: we do not recommend using any indicators on real accounts without first testing their work on a demo account or testing as a trading strategy. Anyone, even the best indicator, applied incorrectly, gives a lot of false signals and as a consequence can bring significant losses in the process of trading.
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