4.15 Recap - Moving Averages Q&A

 
Here’s a refresher on moving averages, sort of like flash cards!
 

What advantages do moving averages offer?

 
  • They smooth out market prices.

 

  • They help you to identify the current trend, good entry points and reversals of trend.

 

  • They can also be used as dynamic guideposts of current support and resistance zones.

 

  • By selecting different moving averages we can get an insight into price behavior over different time frames, such as long term and short term.
 

What are their problems?

 
  • They are slow i.e. they lag.

 

  • They are prone to deliver whipsaws and trend fake outs.
 

Types of moving averages.

 
  • Simple moving average

 

  • Weighted moving average

 

  • Exponential moving average
 

Compare more commonly used SMA and EMA.

 

Simple Moving Average Exponential Moving Average
Simply calculated over the entire period Puts more emphasis on recent price
Smoother, with longer term M.A.s being more smooth than shorter period moving averages Short period ones are better for short-term trade positions 
Slow to respond but more reliable Quicker but deliver many false signals

 

   

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