Usually, to analyze price changes in financial markets, analysts use the moving average index. This indicator is one of the most important tools that traders examine in new or classic styles of technical analysis. If you also intend to buy and sell digital currency, the most common term you should be familiar with is moving origin. In the rest of this article, stay with us to learn the settings and how to work with the moving average indicator.
What is the moving average?
A moving average is a technical indicator that reflects price action and movement. Thus, market analysts and investors use it to determine the direction of a trend and examine support/resistance to generate trading signals. This indicator summarizes the data points of a currency over a specific time period and divides by the number of data points to arrive at an average. Because it is constantly recalculated based on the latest price data, it is called a moving average.
Application of moving origin
In finance, moving average (MA) is an indicator commonly used in technical analysis. The reason for calculating a currency’s moving average is to help smooth price data by creating a constantly updated price average. By calculating the moving average, the effects of random and short-term fluctuations on the currency price are reduced in a certain period of time. A simple moving average (SMA) is an arithmetic average that takes the average of a given set of prices over a specified number of days in the past. The Exponential Moving Average (EMA) is a weighted average that gives more weight to currency prices in recent days, making it an indicator that is more sensitive to newer information. The most important uses of the moving average can be considered as identifying support and resistance levels, confirming the trend and divergence, which you will learn more about in the following.
Types of Moving Origin Indicators
In this section, two main types of moving averages are explained:
simple moving average (SMA)
A simple moving average (SMA) is an indicator that is obtained by summing the most recent data points in a set and dividing by the number of time periods. Traders use the SMA indicator to identify when to enter or exit the market. An SMA relies on past price data for a given period.
The simple moving average formula is as follows:
SMA = (A1 + A2 + ……….An) / n
- A is the average over period n
- n is the number of periods
exponential moving average (EMA)
Another type of moving average is the exponential moving average (EMA), which is more responsive to recent price changes than the simple moving average.
The formula for calculating the exponential moving average:
EMA= {closing price – EMA (previous time period)} x multiplier + EMA (previous time period)
weighted moving average (WMA)
A weighted moving average is similar to the SMA, except that the WMA gives weight to more recent data points. Each point in the period is assigned a coefficient. The largest coefficient is for the most recent data point and then decreases in order that changes the weight or importance of that particular data point. Just like SMA, when a new data point is added to the beginning, the oldest data point is dropped.
WMA = (weighted average sum) / (weighted sum)
Read more: What are the types of digital currency analysis?
Moving Origin indicator training
When looking at some of these common uses for the moving average, keep in mind that using the moving average or combining it with other trading tools is at the discretion of the trader. Some of the analytical methods of Moving Origin are as follows:
- Identify trends
Working with moving averages to confirm price trends is actually one of the most basic yet effective methods used by the Moving Average indicator. Due to the large amount of data involved when calculating long-term moving averages, it takes a significant market move to cause the MA to change course. A long-term MA is less susceptible to rapid price changes than the overall trend. Pay attention to the pictures below. A clearly rising long-term moving average is a confirmation of an uptrend.
A clearly declining long-term moving average is a confirmation of a bearish trend.
- Support and resistance
Another fairly basic use for moving averages is to identify areas of support and resistance. In general, moving averages can provide support in an uptrend and can also provide resistance in a downtrend. This analysis can work for short periods of 20 days or less.
These images show examples of moving averages acting as support and resistance.
- Crossover moving averages
Crossover strategies require the use of two moving averages with different lengths on the same chart. For example, a 50-day simple moving average (medium-term) and a 200-day simple moving average (long-term). Trading signals are issued when the short-term SMA crosses the long-term SMA, also known as the golden cross.
- Price crossover
If you take two moving averages and add a third price factor, there will be another type of crossover called price. You basically use the long-term moving average to confirm the trend. A trading opportunity occurs when the price crosses the short-term moving average in the same direction as the main, long-term trend.
Read more: What is Price Action? Full training
How to calculate types of moving origin
All moving averages take the average of a certain number of previous data points, but each type of moving average weights those data points differently. A simple moving average is formed by calculating the average price of a currency in a certain number of periods. Old data is removed as new data becomes available, causing the average to move along the time scale. The formula of each type of moving average is given at the beginning of the article.
Moving origin indicator settings
two categories Input and Style When you enter the moving origin indicator settings, there are . The Input option includes the following details:
Length: The time period used in calculating the moving average is 9 days by default.
Source: Determines what data to use in calculations. close is the default.
Offset: Changing this number moves the moving average forward or backward relative to the current market. 0 is the default.
In the style option, you can also choose MA appearance features such as color, line thickness and line style.
Advantages and disadvantages of using moving average in chart analysis
Two of the most popular types of moving averages are the simple moving average (SMA) and the exponential moving average (EMA). As mentioned, moving averages can be used to identify trend direction or define potential support and resistance levels. A moving average does not predict price direction. Instead, it specifies the current direction. However, the moving average has a lag because it is based on past prices. Investors use moving averages to help price action and filter out noise.
Remember to avoid using isolated MA alone, as incorrect detections can cause unfavorable results in your trades. It is suggested to use a set of analytical methods so that you can make correct and stable decisions about buying and selling digital currency. This indicator is used along with many other technical indicators such as Bollinger Bands, MACD and McClellan Oscillator