Moving Average
Moving average shows the mean (central average) instrument price value over a specific period of time and is used in technical analysis to plot a graph together with instrument’s prices. The types of moving averages are the Simple (also referred to as Arithmetic), the Exponential, the Smoothed and the Linear Weighted. Red line indicates Moving Average indicator
Calculation
SMA = SUM (CLOSE, N)/ N
EMA = (CLOSE (i)*P) + (EMA (i-1)*(1-P)) P = percentage of using the price value
LWMA = SUM (CLOSE (i)*i, N)/ SUM (i, N) SUM (i, N) – total of weight coefficients SignalsThe main principle of moving average is to invest when there is a "crossover". On an occasion that the instrument’s price is less than their moving average it implies a bad deal and a downwards momentum, and vice versa. |