11.1 – The moving average
We have all learned about averages in school; moving averages is just an extension. Moving averages are trend indicators and are frequently used due to their simplicity and effectiveness. Let’s learn more in this video.
In the following final video, we will learn to make our checklist.
We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.
Key takeaways from this chapter
- A standard average calculation is an estimate of a series of numbers.
- Moving Average uses the most recent data and excludes the oldest.
- The SMA gives equal weightage to all data points in the series.
- In EMA, recent data gets the max weightage over the oldest.
- I prefer EMA over SMA because EMA gives more weightage to the latest data points more weight.
- Current market price > EMA = optimistic outlook.
- Current market price < EMA = bearish outlook.
- MA’s can cause whipsaws in a non-trending market, resulting in losses. To overcome this, EMA is used.
- The shorter EMA is faster to react, while the longer EMA is slower to respond in a crossover system.
- But when the faster EMA is above, the slower EMA. The trade will continue until the faster EMA falls below, the slower EMA.
- The longer the time frame for a crossover system, the lesser the trading signals.