How does a Moving average work

average work

The moving average is one of the most frequently used indicator in Technical Analysis which is based on past prices. It is useful to figure out two major things:

To identify the marking conditions

To enter and exit a trade

How does a Moving average work?

It is shown as a line on the chart. The average price of a security over a defined number of time period is shown.

The MA (moving average) line is drawn by taking the average price over a defined number of time period.

The average price is then marked on the chart. This is usually none other than the closing price of each candle.

Classification of Moving Average

As we are now aware of what is a “Moving Average” and how it works, we shall now look into the different types or classification. However, we need not get too much into the details of the calculation part of each classification as the calculation part is automatically carried out by the charting packages. We usually use only the visual lines on the chart.

Moving Average is classified into Nine types

1.Simple moving average(SMA)

2.Exponential moving average(EMA)

3.Double Exponential Moving Average(DEMA)

4.The Triple Exponential Moving Average (TEMA)

5.Linear Regression

6.Displacing the moving average

7.The Time Series Forecast (TSF)

8.Wilder moving average

9.Weighted moving average