Until here we have learned many things about moving average explained.
From the introduction of moving averages and types that are widely used.
On this page, you will only get a summary explanation of some of the chapters that have been studied previously about MA
This is only a cursory understanding of the whole lesson about MA
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Summary using MA
The MA is one of the trading tools to analyze the forex market, stocks, and other derivative products.
Thus many traders also use this method for cryptocurrency analysis.
The moving average (MA) is a method of estimating the likelihood of future price movements by calculating past or historical data.
There are several types of MA
But the most common and widely used by traders is that Simple moving averages are often abbreviated as SMA.
And Exponential moving averages or abbreviated as EMA.
The simple moving average is the simplest form of MA
It calculates the total of all close prices divided by the period used, but Simple moving average is vulnerable to spikes.
While the exponential moving average gives more weight to the current price.
Which means it places more emphasis on what traders are doing now.
It can be said that the exponential moving average is more responsive than the simple moving average.
- Simple moving averages have smoother characters than exponential moving averages.
- So it’s important to understand what’s happening now compared to what happened last month.
- The next simple moving average is abbreviated as SMA.
- Simple moving averages has characteristic smoother than exponential moving averages.
- Longer period moving averages has characteristic smoother than shorter period moving averages.
- Using exponential moving averages can help you find trends faster, but be vulnerable to many false signals.
- Exponential Moving Average, hereinafter abbreviated as EMA, is a type of Moving Average (MA) that places greater weight and significance on the latest data points.
- EMA reacts more quickly to the latest price data so it gives a faster signal than SMA.
- Faster EMA reactions sometimes give fake signals so this is a risk concern.
- Both EMA and SMA react in the direction of the trend, in an uptrend condition the moving average line will lead to an upward slope, on the contrary, the downward trend direction of the moving average line also looks downward slope.
Analogy SMA vs.EMA is like a turtle with a rabbit.
- SMA is like a turtle because it is slower but has a stronger shell, so the risk is minimal.
- EMA is like a rabbit, which moves fast but is vulnerable with a high risk.
Depending on the perception of each trader, this adjusts to the needs of the analysis.
- Simple moving averages give slower signals but minimize the risk of fake signals, but you might lose a few pips because of the signal delay given.
- Exponential moving averages give signals that are faster and minimize you from missing the best prices but probably you often to get fake signals.
How do you use MA to identify market trends?
- Simply to find a trend with an MA is when prices are above the MA line is an indication of an uptrend.
- Conversely, if the price is below the MA line this is an indication of a downtrend.
- Using MA to identify trends sometimes occurs fake signals, where prices cross the MA line but that is not always a trend reversal.
- To minimize this fake signal the trader uses two MA with different periods, generally a period of 10 with 20, then a period of 20 with 50 and so on.
MA crossovers are a way for traders to determine trading momentum.
The way to analyze is to use two MA and look at the intersection point between the two MA
- Trading with MA crossovers is when the faster MA (short period MA) crosses the MA slower (long period MA) from the bottom crosses to up then this is a buy signal.
- Conversely, when the faster MA crosses the MA slower from above to the bottom it is a signal for short or sells position.
- Using MA as dynamic support resistance means to determine the zone of support and resistance using MA, meaning the dynamics are floating.
- So support and resistance zones based on MA will float following changes in prices.
- How to trade using dynamic support resistant MA is waiting for prices to bounce closer to the MA line.
- But sometimes the price crosses the MA line before finally returning to follow the main trend, then to overcome this fake signal the trader uses two MAs as filters.
- The area between one MA line and another MA line is a support or resistance zone.
- Using MA as dynamic, resistant support sometimes breaks out past the MA line and starts the trend reversal.
- Using MA for a certain period are traders free to choose, but most use periods of 10, 20, 50, 100, 200.
Grateful that we have finished learning about the MA, which is an indicator of a million people.
Many other indicators take the calculation method using this MA so that the indicators appear similar, for example, alligator indicators, then Bollinger bands, MACD, and others.
So it is not wrong to understand the basis of analysis using MA it can develop your technical analysis skills.
One thing that is often the advice of senior traders is a disciplined attitude in trading by trading according to the rules of trading methods.
So if you use an MA you must be disciplined with the rules of how to use this indicator, plus discipline with money management and risk management, because that’s how you survive.
If you have become a profitable trader using MA, then there is no need to corrupt as Trump did
In the next chapter, we will study a variety of popular forex indicators and many traders also use these indicators, stay tune with TenkoFX.co.za.