In this video, you will learn:
- What Is a Moving Average?
- How can we use a Moving Average?
- How to use multiple Moving Averages to define trend?
- The different types of Moving Averages
- How to use Moving Average as support and resistance?
- How to use crossover to find trend changes?
Moving Average displays an average value of an asset over a set period of time. So, for a 20-day Moving Average, the last 20 closing prices for each day are taken and added together, then divided by 20, giving the average closing price of the last 20 days. This price is then plotted on the chart. Moving Averages can be used on any timeframes.
Moving Averages are used to smooth out price action, which makes it easier to interpret information, such as the current trend direction, and how strong that trend is. If the slope of the Moving Average is pointing up, the prevailing trend is up. The steeper the slope and the further the price is away from the Moving Average, the stronger the trend.
If the price is below the Moving Average, it indicats that the prevailing trend is down. There are no specific rules when choosing the period setting of a Moving Average. Shorter periods react more quickly and produce less reliable signals. Longer periods have more reliable signals and react more slwoly. When you determine the trend using a Moving Average you must take into account the period setting of the Moving Average used. The trend is relative to the period setting you use.
You can use multiple Moving Averages to define a clear trend. There are 4 different types of Moving Averages. The Simple Moving Average places equal weight on each closing price. Exponential Moving Average put more weight on the most recent data points. The Linear Weighted Moving Average and the Smoothed Moving Average also put more weight on the recent data. Moving Averages can also be used as support and resistance.
In an uptrend, you enter into a long trade, when price touches the Moving Average, which acts as support. In a dowtrend, you enter into a short trade, when price touches the Moving Average, which acts as resistance. Moving Average cross overs are used to identify a change in the trend, by using 2 different period of Moving Averages.
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