Summary

• A moving average is a way to smooth out price action.

• There are many types of moving averages. The 2 most common types are: Simple Moving Average and Exponential Moving Average.

• Simple moving averages are the simplest form of moving averages, but they are susceptible to spikes.

• Exponential moving averages put more weight to recent prices and therefore show us what traders are doing now.

• It is much more important to know what traders are doing now than to see what they did last week or last month.

• Simple moving averages are smoother than Exponential moving averages.

• Longer period moving averages are smoother than shorter period moving averages.

• Choppy moving averages are quicker to respond to price action and can catch trends early.  However, because of their quick reaction, they are susceptible to spikes and can fake you out.

• Smooth moving averages are slower to respond to price action but will save you from spikes and fake outs. However, because of their slow reaction, they can delay you from taking a trade and may cause you to miss some good opportunities.

• The best way to use moving averages is to plot different types on a chart so that you can see both long term movement and short term movement.