Moving Average is a lagging technical indicator that indicates the average price of a stock over a determined period of time. As a lagging indicator that reacts to price, Moving Average cannot be used to predict future price but is usually used for confirmation and analysis. Since each price point on a Moving Average trendline is the average of several historical price points of a stock, Moving Average smooths out the noises when we try to read charts. The more volatile a stock is, the bigger the noises. As Moving Average filters out the noises, trends become more obvious to the technical trader. Check out tradingview’s advanced charting tools
Moving Average Length
Traders can choose custom Moving Average (MA) length to suit their trading style. Common MA lengths are 10,20, 50, 100, and 200. These lengths can be applied to any chart at any time frame. Click this link to access an economic calendar for your trading strategies
How to Interpret Moving Averages
Though very simple, a Moving Average is one of the best indicators to confirm a trend. Try out indicators on Tradingview.com
- If the Moving Average is moving upwards, the trend can be said to be bullish.
- If the Moving Average is trending downwards, the trend can be said to be bearish.
- If the Moving Average is moving sideways, we can say that the stock is trading in a range.
Moving Averages can be used to identify support and resistance levels:
- In an uptrend, a Moving Average can act as a support level as the price bounces off of it before continuing the existing trend.
- In a downtrend, a Moving Average can act as a resistance level as the price hits it and drops again.
Moving Average Crossovers as a Trading Strategy
There are two types of crossover: price crossovers and crossovers of MAs of different time frames.
- Price crossovers: When price crosses above or below an MA to signify a trend change.
- Crossovers of MAs of different time frames: This one involves applying two MAs to a chart: one long-term and another short-term. When the short-term crosses above the longterm MA, it’s a buy signal. When the short-term crosses below the longterm MA, it’s a sell signal.
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