Candle chart and moving average

The moving average is one of the first and most popular technical analysis tools. The advantage of this tool is that it forms a mechanism for tracking trends that enable technical analysts to capture major market movements. Therefore, when the market is in a state of obvious trend, this tool is most effective, anyway, because the moving average is a lagging technical indicator, so only after the trend is formed, it can capture the market changes.

Simple Moving Average

Assuming that the latest 5 closing prices for the gold market were $380, $383, $384, $390 and $382, the 5th moving average of the closing price was:

In the research method of moving average, in addition to choosing different time parameters, it is possible to choose different price data to calculate the average value, and most of the moving average system is calculated by the closing price.

Weighted Moving Average

In the calculation method of weighted moving average, a different weight is assigned to each relevant price data before the average value is calculated. Almost all weighted moving averages take the "frontier emphasis" approach. This means that the weight of recent price data is significantly greater than the weight of past price data. The specific approach to assigning weights depends on the individual preferences of the researcher.

exponential weighted moving average and MACD-oscillating index

Exponential weighted moving average is a special weighted moving average. As with the normal weighted moving average, the exponential weighted moving average also takes a leading edge approach. However, unlike other moving average methods, the method of calculating exponential weighted moving averages includes not a piece of data, but all historical data. In this moving average method, the weight of each price data is assigned a gradual reduction in all historical price data the weight of the subsequent price data decreases in exponential form. Therefore, this method obtains the so-called exponential weighted moving average.

One of the most common uses of exponential weighted moving averages is applied in the MACD method (moving average mutual authentication/reciprocal divergence trading method). The MACD method consists of two curves: the first curve, which represents the difference of two exponential weighted moving averages (usually two exponential weighted moving averages in 26 time units and 12 time units). The second curve, the exponential weighted moving average of the first curve (usually with a 9-hour unit as the time parameter), is the exponential weighted average of the difference between the two exponential weighted averages represented by the first curve. The second curve is called the signal line.

usage of moving averages

1. A trend indicator is formed by comparing the relative position of the price to the moving average. For example, if we judge that the market is in the middle of an upward trend, then there is a good measure of whether the price is above the 65-day moving average, and for a longer-term upward trend, the price must be higher than the 40-week moving average.

2. Use moving averages to form support levels or blocking levels. When the closing price goes up above a particular sprints moving average, it may constitute a bullish signal. The bearish signal is formed when the closing price falls below a moving average.

3. Track the moving average amplitude band (also the Chen Envelope line). These bands are formed after moving averages are shifted downward by a certain percentage, and they also play a supporting or blocking role.

4. Observe the slope of the moving average. For example, if the moving average moves horizontally after a sustained steady rise, or even starts to fall, it may constitute a bearish signal. The trend line on the moving average is a simple and easy way to detect its slope change.

5. Use the dual moving average system to trade.

Candle chart and moving average