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Chapter 11, Part I. Introduction to Moving Averages.

Discussion in 'Complete Trading Education- Forex Military School' started by Administrator, Jun 21, 2011.

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  1. Administrator

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    Part I. Introduction to Moving Averages. [​IMG]
    Commander in Pips: Today we start a new chapter in our Forex Military School and it will be dedicated to the Moving Average indicator and its different types. From time to time we will use abbreviation as “MA”. I think that you understand what “Average” means?

    Commander in Pips: An MA indicator shows the average price of some currency pair during a number of trading periods. The number of periods you will specify by yourself, and also the price type. Most commonly, closing price is used. But also you can use highs, lows or even (High + Low + Close)/3. Unless special notes are made, the for this chapter we will talk about MA indicators that are based on close prices.

    Pipruit: Ok, but why “moving”?​

    Commander in Pips: Because the indicator calculates average price of the most recent number of periods. This number of periods remains constant. It means, that when new trading period just has been completed – the calculation process moves to the right – it then excludes from the calculation the most far trading period and add to the calculation the most recent one. So, it works out that the calculating process “moves” in time. Here what it looks like:


    Chart #1 GBP/USD Weekly 5 period and 25-period Simple Moving Average
    [​IMG]

    Pipruit: Looks nice, but how we could use it?​

    Commander in Pips: Well, as with others tools, MA is needed to project future price movement. At least it could tell us the average sentiment on the market during the most recent period by the slope of the MA. For example, on right side of the chart, we can see that the MA is facing upward, so we can make a conclusion that during the recent time the average market bias was bullish.

    Pipruit: I see that in general MA looks smoother than a price chart…​

    Commander in Pips: Yes, that’s an advantage of MAs – they shows you market direction in general, by smoothing any splashing and choppiness. That’s why it is much simpler to understand and interpret.

    Pipruit: Hm, it pushes me to some idea, but I’m not sure… Commander, and can we use an MA indicator to estimate trend direction? Once you’ve said that an MA shows us “market direction in general”

    Commander in Pips: Absolutely. This is one indicator (although among others) that is very often is used for estimation of the trend direction. We will talk about it in later parts of this chapter.
     
    #1 Administrator, Jun 21, 2011
    Lasted edited by : Mar 6, 2016
    Hamza Samiullah and fran alvarez like this.
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