What Is a Moving Average (MA)?
In statistics, a moving average is a calculation used to analyze data points by creating a series of averages of different subsets of the full data set. In finance, a moving average (MA) is a stock indicator that is commonly used in technical analysis. The reason for calculating the moving average of a stock is to help smooth out the price data by creating a constantly updated average price.
By calculating the moving average, the impacts of random, short-term fluctuations on the price of a stock over a specified time frame are mitigated.
KEY TAKEAWAYS
A moving average (MA) is a stock indicator that is commonly used in technical analysis.
The reason for calculating the moving average of a stock is to help smooth out the price data over a specified period of time by creating a constantly updated average price.
A simple moving average (SMA) is a calculation that takes the arithmetic mean of a given set of prices over the specific number of days in the past; for example, over the previous 15, 30, 100, or 200 days.
Exponential moving averages (EMA) is a weighted average that gives greater importance to the price of a stock in more recent days, making it an indicator that is more responsive to new information.
What is the secret of moving averages in Forex trading?
The secret about moving averages is that they are not an indicator of future of movement.
But everyone trades off them like they are indicators of future movement.
They are only indicators of what has happened in the past.
Moving averages for regular candlesticks are, in my experience, not great for trading. They should only ever be used as a guide and reference for a long term trend.
I got burned early in my career trying to find the perfect moving average cross style system, but they are worthless. In fact, I now actively try to find such obvious setups and trade against them, because I know many idiots like me out there think that a moving average cross is a for sure way to make money.