Moving Averages

The Moving Average is the average of a selected range of prices, usually closing prices, over a specific number of periods (e.g., days, hours).

Purpose: To highlight the trend direction by smoothing price data.

Common Moving Average Periods (in days)

• Short-term MAs:
  • 5-day, 10-day, 14-day
  • Used for quick, responsive trend signals
  • Useful for day trading or short-term swing trading
• Medium-term MAs:
  • 20-day, 50-day
  • Often used to identify intermediate trends
  • Popular among swing traders and position traders
• Long-term MAs:
  • 100-day, 200-day
  • Used to spot long-term trend direction
  • Very common for investors and longer-term traders

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Types of Moving Averages

How Moving Averages Are Used

• Trend Identification:
  • When price is above the MA, the trend is usually considered up.
  • When price is below the MA, the trend is usually considered down.
• Support and Resistance:
  • MAs can act as dynamic support or resistance levels.
• Crossovers:
  • When a short-term MA crosses above a long-term MA, it can signal a potential buy (bullish crossover).
  • When it crosses below, it may signal a sell (bearish crossover).

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How to Choose the Number of Days?

• Shorter MA (e.g., 5 or 10 days): More sensitive to price changes but more prone to false signals.
• Longer MA (e.g., 100 or 200 days): Smoother and better for filtering out noise, but slower to react.