Minggu, 18 November 2007

Moving Average Indicator

Moving Average Indicators is the simplest trend indicator that count average market price of periods (monthy, weekly, daily, minutes). It's almost used by all traders who want to know what is the trend on the market right now. It used to know what is the trend of the market and where the market will go.

There are three common moving average, they are:
-Simple Moving Average/ SMA: averaging market price with equal weight.
-Weighted Moving Average/ WMA: giving weight depend on period of market price occur because new price giving us visual of new condition market.
-Exponential Moving Average/ EMA: another type of weighted moving average that give more importants of most recent market price.
Most people using EMA or SMA as their moving average.

Choosing which market price that counted is depend on the trader it self. If you used closing price, it will change everytime market price move, but if you used open price, the moving average will change only on opening period. Most people using closing price as their based on moving average.

How to used moving average? If the trader using only one moving average, usually they read trend is bullish if the current market price is upper the moving average value/line and trend is bearish if the current market price is below the moving average value/line. They also using the direction of moving average line. They don’t count bullish trend if the moving average line is still sloping down. They only count the bullish signal if the slope of moving average line is going up, and only count the bearish signal if the slope of moving average line is going down.

Most of traders using more than one moving average. In example they are using 5 moving period and 20 moving period on Daily chart. 5 MA periods represent weekly trend and 20 MA periods represent monthly trend. If the fast MA crossing up the slow MA then the trend is bullish but if the fast MA crossing down the slow MA then the trend is bearish.

Usually moving average is not the only indicator. Many trader using moving average with another indicator like MACD, Stochastic, DMI, and many others. It because even moving average has a fault signal especially when the market is flat or very volatile. If the market price is very close with the moving average line, it’s better to wait until it show us the real direction. So the best way to used moving average is by combining it with other indicators.

Period number that people often used for moving average is: 5, 10, 20, 50, 100, 200 period. But usually they not use it all on one chart but choosing to pair it like 5-20 period moving average or 100-200 moving average.

Good luck for your trading and success for you!!