How to make Use of Moving Average Indicator?

  • July 2014
  • Posted By Ninoslav
  • 0 Comments

Moving average indicator is known to be an elementary form that allows calculating the average of currency for a specific period of time. There is the necessity of offering the period as input and 21 days is known to be a popular period. It is an average of currency price that is being followed for the last 21 days. There are two different ways through which the market trend can be identified. Firstly, the direction of graph will indicate the ups and downs of market. Secondly, the market trend is also identified based on location.

Understand different types of indicator
There are two different types of indicator that is usually adopted by traders such as SMA (Simple moving average) and EMA (Exponential moving average).

While talking of SMA you need to understand that it can only be formed by adding different number of period points while calculating their average. It is known to be a moving average as new price data is easily available. But, the data point is usually set by traders. The last period point drops which is further incorporated with new data to calculate the average.

EMA is also an effective method that is adopted by traders which was introduced with idea to eliminate the identified flaws found in SMA. In case of SMA, the programmed point are given equal weight age, but EMA appears to be different as it emphasis weight on new data while concentrating less on old data.

Implement the data envelop
Moving average indicator will move next to average envelop. If you are eager to get quality and valuable information, then it is always better to shift from simple indicator. This envelop offers a band around price which will give information regarding the overbought or oversold of currency. The currency that is analyzed and the time frame taken into account will help in deciding percentage of envelop. To make proper utilization of average indicator, you need to have complete grasp on “How to plan an Effective Money Management?”

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