The illustration chart below displays a 200 period moving average.
The calculation is based on the previous 200 periods from the current candle.
Number 1: Simple moving average over 200 periods
The moving average is used to stable the price action by producing a single line.
It becomes easier for traders to interpret market information, such as current trend direction.
The illustration chart below depicts:
The trend direction and strength can be identified by observing the slope and the angle of a moving average.
The price is in a strong trend if the average is very steep.
Number 1: Steep angle to the upside denoting bullish trend
Number 2: Flat angle in a range denoting a weak bearish trend
Number 3: Steep angle to the upside denoting a strong bullish trend
The price is higher than the recent price averages if the price is above the moving average and can be said as the reason that the price moves up which is bullish trend
If the price is trading below a moving average it can be said as the reason for the price moving down which is bearish trend.
This helps the trader to make decisions as to which direction to trade.
Any moving average is relative to the period for which we are observing the trend.
Further moving averages on the chart must also be taken into consideration.
50 day moving average crosses 200 day moving average Illustration:
If the price is trading above a 50 day short term moving average, we may find that the price is currently trending to the upside.
If the prices trading above 100 day moving average it showing medium trend bullish.
The price could also be trading above the 200 day moving average. This reflects that the price is in an overall long term uptrend.
Green color line: 50 day moving average denotes short term
Block color line: 100 day moving average denotes medium term
Red color line 3: 200 day moving averages denote long term trend identification.
If prices above the 50 day moving average line which is short term bullish, alternate scenario prices below the 50 day moving average line which is short term bearish.
If prices above the 100 day moving average line which is medium term bullish, alternate scenario prices below the 100 day moving average line which is medium term bearish.
Above chart analysis when prices move above 200-day Simple Moving Average is a long term uptrend .If prices below 200 day moving average reflected indicating long term downtrend.
Charts indicating when crude oil prices 50-day SMA crosses above the 100-day SMA then turn medium term bullish trend, trader could accumulate buying sentiment.
And additional confirmation for crossover above 50 day SMA, 100 day-SMA, 200-day SMA there will be whole trend turn bullish for long travel.
Either crude oil prices might consider selling when the 50-day SMA crosses below the 100-day SMA which is short and medium term bearish.
Additional conformation when crude oil prices below 50 day SMA, 100 day-SMA, 200-day SMA there will be whole trend turn bearish for down travel.
In the chart above of the Crude oil , both potential buy signals indicating would have been extremely profitable, but the one potential sell signal would have caused a small loss. Keep in mind, that the 50-day,100 day , 200-day Simple Moving Average crossover is a very long-term strategy.
An overview of the lesson discussed so far….
The short term 50 day SMA that helps us to find out the when the crude oil price change short term direction.
We can also identify long term trend through 200 day moving average.
We can trade with clear trend and buy and sell signal
A trader can use these moving average to not only determine what trend the price is currently in for the shorter term, but to also determine the overall longer term trend.
Using multiple moving averages to define a clear trend
By using multiple moving averages, a trader can determine a clear downtrend or uptrend.
The moving average will move into the order of the periods away from the price when the market is clearly trending.