Fri. Oct 7th, 2022

Before understanding the moving average price we should know what is average? An average is defined as the mean value of the given data. Let us understand it by an example. Suppose a person got 60 marks in English, 70 marks in Hindi, 50 marks in math, and 70 marks in science. So the average that he has got is the sum of all these marks divided by 4 because the total number of subjects is four.

Average = (60+70+50+70)/4

= 250/4

=62.5

So the average score that he has got is 62.5.

Similarly Indian stock market many people take a trade on the basis of the moving average. Basically, the moving average is of 2 kinds.

  1. Simple moving average
  2. Exponential moving average

Let us discuss each of them one by one:

Simple Moving Average

  • Moving average stock indicator that is used in technical analysis.
  • A simple moving average is basically the Arithmetic mean of the stock prices of the past few days. For example 10, 20, 50, 100, and 200 days.
  • A simple moving average is used to smooth the noise in the stock prices.
  • It is a lagging indicator because it uses the prices in the past. The longer the time period the greater the lag is.
  • A rising moving average indicates there is an uptrend while a declining moving average indicates there is a downtrend.
  • The upward moment is confirmed when there is a bullish crossover, which occurs when the shorter-term moving average crosses the longer-term moving average.
  • The downward movement is confirmed when there is a bearish crossover which occurs when the longer-term moving average crosses the short-term moving average.
  • The shorter the time span to create a moving average, the more sensitive it will be for the price changes. Conversely, the longer the time span to create a moving average, the less sensitive it will be to the price changes.

Investors and traders generally used 50 and 200 SMA for trading and investing. A simple moving average is a customizable indicator and different persons can use it differently. For example, for one person 20 SMA is best and it is working for him but for others, it may be 50 SMA or 100 SMA. So it varies from person to person and they can get the most out of it by experimenting with what SMA is best for them.

Moreover, you can vary the length of the time frame. For example, the people who want to take a shorter trade can use 15 minutes SMA or 30 minutes SMA, 5 minutes, and the people who wanted to take long trades can use SMA of 20 days 50 days 100 days. In general, shorter SMA or shorter time period is used for intraday trading, and longer SMA is used for investing purposes.

Moving Average as a Support and Resistance

  • Suppose the price of a stock is above the moving average and is Rising. Then with time, the price will follow the moving average or the moving average will follow the price. whenever the price of stock comes near to the moving average it will act as a support and the price will get bounce back from here but it is not true all the time. Sometimes there is a breakdown of the moving average then the stock will fall or there will be the stop loss hunting.
  • Conversely, if the price of a stock is below the moving average and is in a downward trend. When will the time the prices for the moving average on the moving average and follow the price. When the price of stock comes near to the moving average it will act as resistance and the price will get in a downward direction but it is not true all the time. Sometimes it may break the moving average resistance and I will be rising or there will be the stop loss hunting.

Most Common Moving Average

The most common moving averages that are normally in western traders used are 10 SMA, 20 SAM, 50 SMA, 100 SMA, 200 SMA.

Exponential Moving Average

An exponential moving average is also the average price of this stock but there is difference between the exponential moving average and the simple moving average. In the exponential moving average, the weight is given to the most recent Candle.

The most common moving averages that are normally in western traders used are 10 EMA, 20 EAM, 50 EMA, 100 EMA, and 200 EMA.

Moving Average Crossover

Whenever a moving average cuts above or below the other moving average and it is called moving average crossover. Many investors or traders take a trade on the basis of the moving average crossover. The most common moving average crossover is 50 and 200.

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FAQ

What are the 4 major moving averages?

The four major moving averages are 20 days, 50 days, 100 days, and 200 days.

What is a crossover moving average strategy?

Whenever a moving average cuts above or below the other moving average and it is called moving average crossover. Many investors or traders take a trade on the basis of the moving average crossover. The most common moving average crossover is 50 and 200.

Also read 10 Easy Ways To Earn Money Online

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