Moving Average Indicator.

The moving average is based on past prices and can be categorized as an indicator that follows the trend. It shows the average value of the price of an instrument during a certain period. When the Moving average is calculated, the price of the instrument is mathematically averaged over a given period. Its average value increases or decreases depending on the price change.

There are several types of moving averages: simple (also called arithmetic), exponential, smoothed and weighted.

The Moving average can be calculated for any sequential set of data, including the opening and closing prices, minimum and maximum, trading volume or other indicator values. Often the moving averages of the same moving averages are used.

The only thing in which the Moving averages of different types differ substantially is different weight coefficients that are assigned to the latest data.

In the case of the Simple Moving average, all the prices of the considered period have the same weight. The Exponential Moving average and the Pondera (Exponential Moving average and Linear Weighted Moving average) assign more value to the latest prices.

The most common way to interpret the moving average of the price is to compare its dynamics with the dynamics of the same price. When the price of the financial instrument rises above the value of the Moving average, the purchase signal appears, when it drops from the indicator line - the sales signal jumps.

How to use the Moving average Indicator?

It is really important to know the characteristics of the indicators that we use since this will help us to understand which situations work best and how to get the most out of the information they provide.
This trading system using the Moving average is not designed at all to guarantee entry to the market strictly at its lowest point, and the exit from it - just at its peak.

It allows you to act according to the current trend: buy after prices have hit bottom, and sell after the peak has been formed.

Depending on the method there are three types of mobile media: simple mobile average (SMA), smoothed mobile medium (SMMA) and exponential moving average (EMA).

The analysis of moving averages has the following principles:

• The direction of the moving average shows the direction of the movements of the prevailing prices
• The smaller the period of the moving average, the more false signals can occur, and the longer the period, the greater the backwardness of the indicator
• To increase (decrease) the sensitivity of the moving average, it is necessary to decrease (increase) its period.
• The use of moving averages is more reliable when the trend is evident.

Comparison of the dynamics of moving averages with the dynamics of asset prices:

• A strong signal for the purchase (sale) is considered the intersection of the lower part (top) of the moving average an increase (low)
• A weak signal for the purchase (sale) is considered the intersection of the lower part (top) of the moving average low (growth).

Comparison of the dynamics of moving averages with different periods:

• A strong signal for the purchase (sale) appears when the growing (decreasing) moving average, with a small period, crosses for the lower part (top) a growing average (low) with a considerable period
• A weak signal for the purchase (sale) appears when the growing, moving average (decrease), with a small period, crosses the lower part (top) a mean in low (growth) with a significant period.