Moving averages are one of the oldest and the most popular technical analysis tools. There are different types of moving averages, including simple, exponential, time series, triangular, variable, volume-adjusted and weighted. You can also calculate a moving average of another moving average.
Here I only will discuss the simple moving average: is used to calculate the average price of a commodity at a specific point in time. It can be used as a basis to determine support and resistance points than can be useful for developing appropriate entry and exit points on trades. If the market’s price is above a specified moving average, that’s a bullish signal, and when it’s trending below, it’s bearish.
Calculating the simple moving average is just that—simple. A five-day moving average would result from taking data points from the prior five trading days, adding them together, then dividing by five. Which data points you use is up to you. Many traders will use the closing prices in calculating moving averages, but you can also incorporate the high, low and close into your calculations. Find what gives you a unique edge.
Timeframes
Moving averages are useful in suggesting a trend in either direction, and can be used in any timeframe. In general, the shorter the moving average timeframe the more sensitive it is likely to be. If you are long-term trader, you could get false signals if you rely on these. Some traders like to combine a short-term moving average with a long-term moving average. When a short-term moving average crosses over a long-term moving average (called a crossover), it is thought to provide a contrarian short-term signal.
Best of luck
María
fx-Megaforex
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