- There are many types of moving averages. The two most common types are a simple moving average and an 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 price, which means they place more emphasis on 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.
- Using the exponential moving average can help you spot a trend faster, but is prone to many fake outs.
- 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.
- You can use moving averages to help you define the trend, when to enter, and when the trend is coming to an end.
- Moving averages can be used as dynamic support and resistance levels.
- One of the best ways to use moving averages is to plot different types so that you can see both long term movement and short term movement.
You got all of that? Why don’t you open up your charting software and try popping up some moving averages.
Remember, using moving averages is easy. The hard part is determining which one to use!
That’s why you should try them out and figure out which best fits your style of trading. Maybe you prefer a trend-following system. Or maybe you want use them as dynamic support and resistance.
Whatever you choose to do, make sure you read up and do some testing to see how it fits into your overall trading plan.