In this tutorial, we've covered the basics of moving averages. Here's a brief recap:
- Few technical indicators are as popular and widely followed as the moving average.
- Moving averages come in various forms, but their underlying purpose remains the same: to help technical traders track the trend of financial assets by smoothing out the day-to-day price fluctuations, or noise.
- The simplest form of a moving average is appropriately known as a simple moving average (SMA). It is calculated by taking the arithmetic mean of a given set of values.
- The exponential moving average (EMA) assigns a weighting to recent data because many traders regard this as the major downfall of the SMA.
- Some of the primary roles of a moving average include identifying trends and reversals, measuring the strength of an asset's momentum and determining potential areas where an asset will find support or resistance.
- A moving average can be a great risk management tool because of its ability to identify strategic areas to stop losses.
- Using moving averages can be very ineffective during periods where the asset is trending sideways.
- There are many different strategies involving moving averages. The most popular is the moving average crossover.
- Moving averages are used in the creation of a number of other very popular technical indicators such as the moving average convergence divergence (MACD) or Bollinger Bands®.
- Moving averages won't solve all your investing problems. However, when used judiciously, they can be valuable tools in planning your trading strategy.
TradingThe Moving Average indicator is one of the most useful tools for trading and analyzing financial markets.
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TradingWe take a closer look at the linearly weighted moving average and the exponentially smoothed moving average.
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