HomeKNOWLEDGETechnical analysisWhat is Moving Average?

What is Moving Average? [All you need to know]

What is ghost road?

The moving average is also known as the moving average. This is a basic tool that you can grasp easily. From there, it can be used in analyzing market trends.

When participating in any market. As a trader or an investor. To find trading opportunities, you need to be able to predict the market trend.

Although not completely sure, using different analysis methods will give you a safer position. If you just joined Forex market, electronic money, or another market,..should read the article:

What is forex market analysis? 3 most popular and effective analysis methods

What is a moving average (MA)?

Moving average or moving average is a most popular technical analysis tool used to check price movements.

Watch now: What is technical analysis? Detailed guide for beginners

Like technical indicators, moving averages help traders forecast future prices. It is popular with traders because it can help determine the direction of the current trend. It also reduces the impact of random price spikes.

Calculating MA requires a large amount of data. The data is big or small depending on the length of the moving average. For example, 10 days requires 10 days of data. A year requires data of 365 days.

Although the moving average is a commonly used trading technique. But they also form the basis of other popular technical indicators, including Bollinger Bands , and MACD,…

ghost lines

How many types of moving averages are there?

The two most popular moving averages are:

  • Simple Moving Average (SMA).
  • Exponential Moving Average (EMA).

Let's analyze each MA line:

Simple Moving Average (SMA)

This is the simplest and most basic moving average, just taking data from a period of time and averaging over a set of prices over that period. At the end of each day the oldest data point is deleted and the data point is added to the beginning.

Specifically, the calculation formula is as follows:Total closing price for N times / N.

For example: SMA(3) with closing prices calculated 3, 4, 5, then SMA(3) = (3+4+5)/3 = 4.

Exponential Moving Average (EMA)

EMA is based on past price movements. With the EMA the old data points never leave the average. The old data points retain a multiplier (albeit dropping to almost nothing) even if they fall outside the selected data series length.

Compared to the SMA, the EMA has a faster reaction speed to price changes (or predicts price reversals) and has a more complex calculation equation.

In brief

Currently, with the development of software or tools, you do not need to pay much attention to the formula for calculating these indicators. Just understand its meaning or nature to use it effectively. As for the calculation and display, the software has taken care of it.

Evaluate the advantages and disadvantages of SMA and EMA

This question is asked by almost anyone who uses the MA. The difference or the advantages and disadvantages will give you the most specific assessment. Thereby the choice also affects a lot of transactions.

SMA . Line

Advantage:

  • The reaction speed of the SMA is slow, so it eliminates the noise of short-term fluctuations.
  • The SMA is often favored by the analyst using longer timeframes such as the daily or weekly (long-term) chart.

Disadvantages:

  • The weakness of the SMA is that it reacts more slowly to rapid price changes that often occur at market reversals.
  • May not accurately reflect the most recent trends.

SMA . line

EMA

Advantages:

  • Faster reaction speed on price changes than SMA by equalizing price changes. The signal trend of EMA is faster than SMA so this is beneficial for traders at points swing high , and swing low.
  • EMA is often used by traders who are trading on short time frames like minute chart, hourly chart (short term).

Disadvantages:

  • Speed ​​and EMA sensitivity are also its downsides. Because of its high sensitivity, it is easy to give false signals when the market fluctuates strongly.

EMA20

What is the purpose of using the MA?

The main purpose is often used for determining the direction of the market trend. Identify support and resistance. The moving average usually acts as a resistance level when the price is trading below the MA and it acts as support when the price is trading above the MA.

Watch now: What is support and resistance? The most effective way to identify and trade 

Another benefit of moving averages is that it is a customizable indicator. This means that the trader can choose a timeframe that suits his trading goals.

The choice of the number of periods for a moving average is also very important because it affects the effectiveness of its use. People often use the following stages:

  • Short-term (5-25 day MA)
  • Medium term (MA for 26-100 days)
  • Long-term (100-200 day MA)

For each specific purpose, the moving average is applied as follows:

Identify trends

When the price is trending up, the moving average is also trending up to show that the price is moving up. Here is the trading opportunity for you. That is, you can open a long position.

To do this, you just need to open 1 MA on the chart, when the price is above the MA, it is a sign of an uptrend and vice versa. However, there are still scams that must be experienced by many new friends.

price is above bullish signal

Identify support and resistance

The moving average is used to identify support and resistance levels after a trader has placed a trade.

There are many forex traders who view these moving averages as key support or resistance. These traders will buy when the price drops and test the moving average, or sell if the price rises and touches the moving average.

Description below: EURUSD chart at 15 min and EMA 50 acting as support:

Ghost Road plays the role of support

Determine entry point by MA crossing

Each moving average has a different value at each point in time. In an uptrend, a long-term MA line from below crosses a point with the short-term MA. Opposite of a downtrend.

But the problem is which MA lines do you have to use for this. The selection also takes time and experience. Or turn on all the lines you use often and watch, kkk.

Summary

In short, a technical analysis tool, no matter how good or popular, needs to be tested. That experiment involves time, effort, and property in exchange for experience.

In addition to understanding the moving averages, you should learn and combine many different indicators to create an accurate investment plan or opportunity. Wish success.

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