What is Moving Average?
Moving Averages are an important tool when analyzing financial markets. They help us understand what is going on in the market at any given time. Moving averages are calculated using past prices and then averaged together to create a single number. The MA is often represented as a line graph, showing the price over time. MAs can also be displayed as bars or candles, depending on the type of charting software you use.
How do you calculate a Moving Average?
A simple moving average calculates an average value for a series of numbers by adding together all the previous results, dividing the sum by the number of items added, then repeating the same process for the next item in the list. This gives us an idea of what the average price might be in the future for the next few weeks.
Why we use Moving Average?
Moving averages help determine when prices will either go up or down in the future. On charts, you'll see a line that looks like an arrow going across the chart. This line represents a moving average. Traders use them as points of reference to tell if prices are likely to rise or fall. If the price rises above the line, then it is considered higher than average and could indicate strength. Conversely, if the price falls below the line, it indicates weakness.
What is EMA and SMA?
Exponential moving averages(EMA) are a type of simple moving average, or SMA, that takes prices into account when calculating the average. Exponential moving averages are useful for smoothing out volatility, and keeping your portfolio balanced. When you purchase stocks, you should consider using exponential moving averages to help determine whether a stock will go up or down. You could also use them to determine if a certain security is undervalued or overvalued.
Which Moving Averages are best?
There are three most useful MA in forex market
- 20 MA : Very popular and extremely fast-moving MA indicator. It's mainly use to identify the area of value in your chart to buy or sell.
- 50 MA : Medium-term and the most accurate moving average. this is used by most of traders in the entire world.
- 200Ma : this is mainly used for justify the market structure. To know where the market is an up trend or down trend.
Here's some Example :
200 MA
20 MA
Always remember that there are nothing is best in the entire market. if a strategy works well in your system and you gain something with that. then it's for you. These is the truth of the entire financial market that's no body tells you.