Moving Average (MA) is an indicator that shows the average price within a defined time period. There are four types of Moving Averages: Simple MA, Exponential MA, Smoothed MA, and Weighted MA. They differ from each other only in terms of the weight coefficients that are assigned to the latest data.
Moving averages are mostly used to define areas of support and resistance, to emphasize the direction of a trend, and to smooth out price and volume fluctuations. The direction of the indicator shows whether a bullish or bearish trend is present in the market at the moment. The intersection of the indicator and the price chart confirms the change in a trend. It is only a confirmation because the change of this indicator is late in comparison with a price change.
Methods of use:
| 1. | When the instrument price rises above its MA, it is a signal to buy. |
| 2. | When the price falls below its MA it is a signal to sell. |
| 3. | The direction of MA gives an idea of whether there is a bearish or bullish trend on the market. |
