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Overview of the Moving Average indicator

The Moving Average is the most extensive group of technical analysis indicators. There are many types — Simple (SMA), Exponential (EMA), Triangular (TMA), and many others. The mathematical principle of averaging is the basis of most modern tools, including those presented in the range on the Quotex trading platform. In this article we will give you a brief overview of this indicator and how to use it.

Information about the indicator

The Moving Average indicator is based on the formula for calculating the arithmetic mean. For example, there are three elements on the chart with closing prices of 105, 90, and 111. If we add a Moving Average line with the simple averaging formula and a period of 3, it will be located at 102. That is the arithmetic mean or average. The Simple MA works according to this principle — the calculation formula is as simple as possible.

The interface of the indicator is as simple as possible — 1 line drawn directly on the chart. The direction of movement corresponds to the type of active trend (up or down). Usually multiple lines are used to analyze the market, each of which is plotted according to a specific algorithm according to the averaging formula.

Moving Average types

In addition to the Simple MA, there are many other types of this indicator as well. Several hundred averaging formulas have been developed and the most successful ones have become very popular in the trading community. A typical example is the Hull Moving Average, developed by a trader from Australia. There are several types of MAs on the Quotex platform, so let’s take a closer look at the most popular ones.

Overview of the Moving Average indicator

  • SMA(Simple) is the basic version, the working principle of which we discussed at the beginning of this article. It is based on a formula that calculates the arithmetic mean of the price, without any additional filters.
  • EMA(Exponential) is a modified version of the SMA which is more sensitive (recent price movements on the chart are taken into account). For example, if the averaging period is 10, candlestick #1 and candlestick #2 will have a greater “weight” when calculating the line’s total value than candlesticks #3, #4, etc.
  • VIDYA (Variable Index Dynamic Average) is a dynamic index from American analyst Tushar Chande. It is a hybrid solution which looks more like an oscillator. Most of the time the line is drawn on a horizontal plane in the middle of the chart. It changes its direction of movement only during a pronounced trend phase.
  • TMA(Triangular) is the most smoothed Moving Average which shows wavy fluctuations on the market. It’s an effective tool when assessing long-term price trends, but it’s inferior to other types of MA on short time intervals.
  • WWMA (Welles Wilder) is an original averaging formula developed by Welles Wilder, who is well known in the trading world. He was also the creator of many other popular indicators, including RSI, ADX, and ATR.

Quotex also offers Time Series MA (TSMA), Hull MA (HMA), Weighted MA (WMA), and other indicators. Each one has its own characteristics and advantages when used as a part of specific strategies. Beginners are advised to start with the simplest solutions such as the SMA, EMA, or TMA.

Market analysis using the MA

The price always tends to converge with the Moving Average line. The greater the deviation of the price on the chart, the faster and more intense its impending rollback will be. This is the basic principle underlying technical analysis strategies.

Overview of the Moving Average indicator

The basic MA information signals when analyzing the market:

  • the line and price crossing— a basic reversal signal when the candles on the chart touch the curve, after which it moves to a lower or higher position relative to the price;
  • the crossing of two or more lines — relevant when using two or more indicators of different types and periods;
  • divergence/convergence — price increase on the chart with a simultaneous decrease of the indicator line, or the opposite situation (a downtrend with upward movement of the Moving Average);
  • convergence or divergence of the lines — a gradual decrease or increase in the distance between the Moving Averages indicates an increase in volatility on the market, or a decrease in it;
  • the order in which the lines are drawn — lets you immediately determine the active trend direction (for example, this principle is used to determine the phases of “Alligator” activity).

Bollinger Bands, Alligator, and other popular indicators are unique combinations of multiple Moving Average lines. Each line has its own calculation formula, indentation, and averaging period.

To conclude our review, it should be noted that online trading involves financial risk. Therefore, you should be particularly careful when trading with a real account and be sure to carefully analyze your decisions.

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