Technical Analysis Overlays

Moving Averages

There are a number of different types of moving average including Simple, Weighted and Exponential.

They are all calculated in slightly different ways with the latter two giving greater weight to more recent prices. But all use prior price action to smooth out the “noisiness” in movements over a particular time period. As they use prior price action they are known as ‘lagging indicators’.

Despite this they can be incredibly useful for establishing whether a market is trending or ranging while they can also highlight areas of support and resistance. Shorter-period moving averages are more reactive and move faster than longer-period ones. Many traders look for moving average crossovers to give them buy or sell signals.

For instance, when a short term moving average crosses above a longer term moving average this is viewed as a ‘buy’ signal. In contrast, if a short-term moving average crosses below a longer-term one, this is often viewed as a ‘sell’ signal.

However, as with all technical indicators, it is vitally important to look for confirmation from other signals.

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