Moving Averages
Moving Averages
In finance, a moving average (MA) is an indicator commonly used in technical analysis. Calculating an asset's moving average is to help smooth out the price data by creating a constantly updated average price and identifying a trend direction.
By calculating the moving average, the impacts of random, short-term fluctuations on the price over a specified time frame are mitigated. Simple moving averages (SMAs) use a simple arithmetic average of prices over some timespan. In contrast, exponential moving averages (EMAs) place greater weight on more recent prices than older ones over the period.
How to Choose a Moving Average for Your Strategy?
The choice of moving average depends on your trading style. Here are the most popular moving averages for different types of trading:
- 13 EMA tells you the short-trend term of the stock. It is a handy indicator for scalpers.
- 20 EMA is great for trading the trend on the lower timeframes (M5, M15). The moving average makes it easier to trade pullbacks and breakouts for the day traders, acting as a support and resistance for the price.
- 50 EMA shows you the medium trend of an asset. Thus, it is one of the favorite indicators of swing traders.
- 100 EMA is attractive to middle and long-term traders because it works great as a support and resistance. It is the most accurate when used on the H4 and Daily timeframes.
- 200 EMA is very popular and is most important for long-term trading, acting as the primary indicator to define the overall trend of an asset.
