| MOVING AVERAGES are the core of the technical traders toolbox. When referring to a moving average, it is simply shown as MA. It is generally the first indicator to be understood when starting to analyze charts. | ||||||||||||
| While there are many variations on the methods for plotting MAs, the more common ones are Simple, Exponential and Weighted. | ||||||||||||
| In addition to the method of plotting the MA, there are variations on plotting through the prices at the Open, Close, High, Low and Median. The closing price is the typical plot choice. | ||||||||||||
| The most critical parameter when plotting a MA is the Time Period. This is the total number of periods to be used to calculate what the average is at the plot point. | ||||||||||||
| The length of a moving average should fit the market cycle you wish to
follow: You modify the time period to fit the frequency you wish to trade at. The more common periods are as follows:
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| A lesser value for the time period will result in a MA that fits the price line more closely. However, you need to use a smoother MA to find the overall trend of the stock. | ||||||||||||
| The main idea is to find a MA that will signal you when the stock begins to form an upward trend and then signal you again when it rolls over at the top and begins to start down once again. | ||||||||||||
| Some trading systems use a combination of MAs to generate their trading signals. | ||||||||||||
| When using hindsight, it is always possible to find a moving average to fit any stock, but the secret is to find a MA that will be consistent in the future and be able to trade it with confidence. |