Moving Average

1. Moving Average This is a widely used indicator that can assist in determining the direction of a trend. When used in conjunction with other indicators it can generate buy and sell signals to the investor. This indicator is used by many people in their final determination of whether to trade. They would only act if the moving average is trending in the direction of the signal or if the price is on the same side of the moving average as the signal is indicating. The moving average has a smoothing effect and can be used to remove noise from the market, by reducing a basic open/high/low/close bar graph a simple line graph. The simple moving average uses the close price to calculate its value over a given time. Depending on the nature of the trader different time frames will be used to determine the length of the moving average.

4. 8 Day 21 Day 55 Day In the example above, the blue line is the fastest and uses an 8 period moving average. A 21 period moving average was used to make the red line and finally a 55 period, in this case day, moving average was used to plot the green line. The green line is the best indicator to the longer term trend, which has turned from up to neutral. The shorter duration lines generated a sell signal back above 32500, when the blue line crossed below the red line. The signal was more or less confirmed when the short term line, the blue line, crossed below the green, long term line.