If you try to create good profits from trading consistently then it will be easier for you, if you can follow the current market trend, a simple tool that you can use moving averages. Moving average (MA) is a lagging indicator or commonly referred to as a trend after the marker that has three types: simple moving average (SMA), exponential moving average (EMA) and weighted moving average (WMA).
MA is a statistical formula that calculates the average price movements over a given period. Usually, the used value is the closing price that occurred in some session in a market. But there are some technicians who perform certain modifications, using the open, a higher price, lowest price or medium price as a variable in the calculation.
Calculation formula used to generate the value of this indicator is very simple. 5-Day SMA price SMA is created from the sum of the most recent closing price 5 days and then divided by 5. Suppose the sum of the last 5 days closing value is 100, then the current 20-day SMA 5. You're lucky, because now you don't need to perform manual calculation to determine the MA of a certain length of time, in a market. Everything is available for your chart. All you have to do now is studying and use high discipline to help achieve good profits consistently.
As a trend indicator obviously moving averages work best when market trending. We'll buy or sell signal that has a very good chance of profit. When prices are above MA then is a buy signal and such condition indicates that the trend will likely move upwards, however when price moves below MA such status indicates begins the tendency to fall and should take place.
There are several other techniques widely used by dealers in their efforts to optimize the power of moving averages. Some technicians use different periods of time moving averages, some prefer to use shorter periods of time as 5, 10 and 20 while some are happy to use 50, 100 and 200.
Another widely used technique implements two or more moving averages with different periods of time, say three SMA with season 4, 9 and 18. If the day 4 and 9 SMA cross over the 18-day SMA underneath this condition indicates the trend of the market will soon be daily and as the shortest MA hovers over a longer period (MA), the next trend likely to continue.
All these techniques and changes depend on which a trader interests and style of trading. As it is to negotiate and then you should try to find a good technique that you feel comfortable. Explore moving averages and good profit from it.
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