The moving average indicator explained in simple terms

A moving average indicator is a key indicator that illustrates the direction of price movement. The mathematical price average of a certain time as indicated by candlestick quantity is used while processing moving averages. To determine the value of a five-candlestick period, for example, the indicator divides the sum of their closing values by five. The indicator then advances one candlestick forward and performs the same calculations.

Mathematics of moving average
Mathematics of moving average

A trader can create a smoother chart direction by building up a line of result values. By indicating the present trend, it smooths out price spikes.

Moving average smooths price bursts
Moving average smooths price bursts

The price sensitivity decreases as the period lengthens. However, the price chart’s lag grows. You can choose the period of the candlesticks and the calculation technique in the indicator settings.

Different periods of moving average
Different periods of moving average

Types of moving averages

Simple moving average

The simple moving average or SMA is an average arithmetical value for a given period.

Exponential moving average

Exponential moving average EMA smoothing works by taking into account the current average value on a previous period with smoothing. The priority decreases exponentially and never equals zero.

Weighted moving average

The weighted moving average WMA assigns top priority to the current price hence the WMA chart does not depend heavily on dated prices. The priority of importance increases linearly.

Smooth simple moving average

The smooth simple moving average SSMA takes into account a large amount of candlesticks throughout historical quotes and is much more smooth.

Types of moving average
Types of moving average

How to use moving average indicator

Moving AverageĀ is a great instrument of detection for a lateral trend wherein rules of trading that differ from rules of trend trading take precedence. Moreover when two indicators with different time intervals intersect it helps determine trend reversals.

How to use moving average indicator
How to use moving average indicator

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