Technical Analysis (6) Moving averages

Moving averages

Moving averages are a way to help you know the price fluctuations on the chart. serve

Moving averages have one goal, which is to help us predict future price movements, just like the

All technical indicators. By observing the movements in price, and the slanting lines of the moving averages, we get

It provides a new way to help us forecast, anticipate the current trend, and perhaps see where prices are heading. you will see

Below, the moving averages are shown in blue.

Simple moving average

In the context of technical analysis, the simple moving average is the least complex of all the averages. we get

On the simple moving average, add the daily closing prices and divide that sum by the number “x”.

Example: If you were to apply 5 periods of a simple moving average to an hourly chart, you would add the prices of

the past 5 hours, and divide it by 5. The software finishes these calculations. All you need is an understanding of the averaging principle

The simple mover.

We show you an example of how to display simple moving averages

In the previous figure, you can see 2 simple moving averages. As we can note, the amount of delay depends on The price over time you use for the simple moving average. The simple moving average of 100 is farthest from It is given by the simple moving average of 5 and 25. This is due to the fact that the moving average Predicts the current situation, if Simple 100, applied over a timescale of 100.

The higher the time period, the smaller the mean curve. All simple moving averages shown above indicate On the prevailing situation in the market during a specific time period. Moving averages allow us to get a closer look

A broader market, compared to the current price, and also we get a forecast of the future price.

Exponential Moving Average

Although the simple moving averages are considered an important tool in forecasting the prevailing sentiment in the market, these

The method is a major drawback. The simple moving averages are exposed to the height deviation. For example, we show

Below is a simple 5-day moving average, for the EUR/USD pair, and you will see the following list of closing prices:

Day 1: 3,345.1

Second day: 3350.1

Third day: 3360.1

Fourth day: 3365.1

Fifth day: 3370.1

Therefore, the result of the moving averages is as follows:


___________________________________  =  3358.1


If the closing price for the second day is 3300.1, the consequence will be that the moving average will become lower.

The other, since the price is in a downtrend. In fact, this did not happen, perhaps that day saw a cut in the interest rate. in

Sometimes, the simple moving average continues its direction without any regard for deviations.

You can filter out all these deviations using the exponential moving average, to get a more realistic picture of

The general direction of the market. The exponential moving averages emphasize the subsequent time periods. Returning to the aforementioned example

Above, this would mean that prices from day 3 to day 5 were of greater importance. Therefore, the price deviation on the second day,

It will have less impact on the moving average. In short, the EMAs give importance to what happens in

The market now. Historical movements are important in technical analysis, but it is also important to know the reaction of markets to

What happens now, more than you focus on what happened last week or month.

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