technical analyst- learn about moving average

Moving Average is the most extensive technical indicators used by investors and traders around the world, because of its ability to eliminate subjective factors from each analyst. Moving Average can be defined as the average price change in a certain timeframe. For example, MA 20, which is the average price over 20 periods of a certain graph. When applied into the graph Daily, MA 20 means the average price for 20 trading days. Similarly, for the H1, MA 20 = average price during the past 20 hours.
Moving Average Type
From the calculation of average prices, the Supreme Court is divided into 3 models:
1. Simple Moving Average (SMA)
MA model is a pure model of average price movement and is the most widely used. The calculations are taken from the sum of all data and then divided by the number of periods in the observation.
2. Weighted Moving Average (WMA)
Calculation WMA taken based on the distribution of the total period. For example, WMA 5 days, is the sum of all data divided by the number of periods; 1 +2 +3 +4 +5 = 15. Differences with a high school located on sensitive Level . WMA is more sensitive than high school. So much faster than the signal produced from high school, but have more noise.
3. Exponential Moving Average (EMA)
MA EMA is seeking to respond to the issues between the SMA and WMA, with a more complex calculations among the three. For example, to make the 20-day EMA, then the required 20-day MA data first, then the data is to serve as the point of initial calculations, to take the difference and the denominator. The calculation of EMA, has been done automatically by the trading platforms. EMA is able to recognize changes in trends early, compared to high school, but has lower noise than the WMA.


Figure 1 Three types of moving averages

In Figure 1 above we can see the difference of the three types of Moving Average. Weighted moving faster, while Exponential moving faster than Simpe MA, but still capable of providing signals faster than the simple Moving Average.
Use of moving averages
There are many ways to use the MA as a tool in determining the trend and its changes, and how it is increasingly growing. Some general description below the use of MA can be used as a guide;
• Identify trends
Moving average can be used as indicators to identify trends by comparing the price movements of the MA lines. A rising trend can be said to have occurred when the price moves above the MA, falls when the price moves below the MA.
• Support and Resistance areas
MA also serves as support and resistance price movement. As in figure 2 MA serves as a support when the euro rallied, after having successfully penetrated the support level, the MA line then serves as resistance.


Figure 2 MA as support and resistance
 

Figure 3 Double crossover method, Euro Hourly

The concept of crossover means, MA will produce a signal when the MA trend up period is shorter cut to the top line of the Supreme Court a longer period, and the signal down trend occurs when the short MA line cut into the bottom line of the Supreme Court a longer period. The combination of a popular classic for this method are: 5 and 10, 10 and 50, 20 and 50.
In figure 3, there are two crossover times, the first and the second to produce losses large enough to produce profits.
Crossover works in the best condition when the price of experiencing a trend in one direction, as illustrated in figure 4, against the USD JPY, Hourly.


Figure 4 Crossover method, USDJPY Hourly