Moving averages provide important information regarding the direction of the market.
They were created to provide the directional information of the market to smoothed out the zig-zag’s that form during a trend formation.
In the current generation of high speed computer calculations, its use has become much more relevant and simplified.
Learn about Magic of Moving Averages from Market Experts
Now they can be calculated and utilized up to the very minute and second of the price information when it appears in your computer screen.
Their applications along with the candlestick charts and pattern formations can provide trading signals for a very strong and profitable trading format.
Use of Moving Average
The most common use is when the relevant moving averages like the Simple Moving Average (SMA), Weighted Moving Average (WMA) and the Exponential Moving Average (EMA) cross each other and generate trading signals.
However, just observing and referring to the moving average isn’t gonna help you to make money. Applying candlestick patterns along with MA provide a higher function to the indicator.
Candlestick patterns and MA together form strategies with higher profitability with the formation of support and resistance levels with reference to MA.
This will help you identify the correct trend and execute trades with a better percentage of profits. The use of MA is very simple.
Once applied to candlestick charts, it makes the identification and analysis of supports and resistances very simple.
But the question always arises whether to use the Simple Moving Average (SMA), Weighted Moving Average (WMA) or the Exponential Moving Average (EMA).
Due to its technicality, the EMA has gained popularity over the years.
Money managers as well as the majority of technical investors use the EMA for their trading as well as investing decisions.
Key Takeaways
A moving average is a technical charting indicator based on averages of past price movements.
Common moving average time frames include 20, 50, and 200 days.
Moving averages are used to identify trends and potential support/resistance areas.
Like most forms of technical analysis, moving averages are based on past price moves and do not forecast the future.
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