Understanding Moving Averages
One of the most widely-used technical indicators, moving averages help traders identify market trends that can guide their decisions on when to buy or sell. Moving averages are essentially lines that follow the price movements of an asset over a certain period of time. By smoothing out price fluctuations, moving averages provide a clearer picture of the asset’s direction.
Traders can choose the time frame for the moving average, known as the “period,” based on their investment goals and trading style. Short-term traders may use a shorter period, such as 20 days, while long-term traders may use a longer period, such as 200 days. The most popular moving averages are the simple moving average (SMA) and the exponential moving average (EMA). Both are widely used in technical analysis. Looking to dive deeper into the subject matter? Explore this external source we’ve arranged for you, offering supplementary and pertinent details to broaden your comprehension of the subject. forex technical analysis, keep learning!
Types of Moving Averages
The SMA is the most basic type of moving average, calculated by adding up the price of an asset at a certain number of intervals and then dividing that sum by the number of intervals. The result is the moving average, which is plotted on a chart as a line that shows the average price over the specified period.
The EMA is a more complex type of moving average that accounts for recent price movements more heavily than older prices. The …