Moving Average (MA): determining the trend direction in technical analysis

The moving average (MA) is one of the most common indicators in technical analysis, which is used to determine the current direction of the price trend.

Moving MAThe Moving Average or Moving Average is a special indicator that displays the average closing price for a set period of time.


MA is considered one of the most popular indicators, as it helps to effectively determine market impulses.


The moving average shows the average value of data points (usually price data) for a certain number of time periods. We say it is “moving” because each data point is calculated using data from the previous X time periods.


Averaging the previous data, the moving average smoothes the price data, forming a trend-following indicator. It does not predict the direction of the price. We can say that it rather determines the current direction. However, when using it, it is important for you to take into account that it is "late" due to the fact that it is based on past prices. At the same time, the moving average helps to smooth out the price movement and filter out all possible interference.


You can use the moving average to determine the direction of a trend or potential support and resistance levels. It also forms specific blocks for many other technical indicators and overlays.


How MA worksSince moving averages are based on past data, this indicator tends to lag behind price data.


The longer the moving average, the longer the delay. In addition, the type of moving average affects the lag: the EMA, in which more recent data has more weight, will lag less than the MA, which gives equal weight to data obtained in the past.


MA is formed through the calculation of the average price indicators of the cryptocurrency for a given period of time. The basis for the functioning of moving averages is the closing price; let's say a five-day MA is a five-day sum of closing prices divided by five. As the name suggests, a moving average is an average that moves. Old data is deleted as new information becomes available, which can lead to a shift in the average values on the time scale.


When adding MA to the chart, first of all you need to make a choice: whether to use an exponential or a simple moving average. Although there are clear differences between simple moving averages and exponential moving averages, one is not necessarily better than the other. Choosing the right type of moving average depends on your trading goals.


Moving averages are usually based on price data, and in particular on closing price data. However, this indicator can be applied to other types of price data (open, high or low), volume data, or even other indicators.


Intersections with the price or with other moving averages can act as a specific trading signal. You can create an entire tape or a system of moving averages with more than one moving average to analyze the interaction between several MAS at the same time.


The MA direction conveys the most important information about prices, regardless of whether this average is simple or exponential. The growing moving average shows that prices are generally rising. A falling moving average indicates that prices are falling on average. A growing long-term moving average reflects a long-term uptrend. A falling long-term moving average reflects a long-term downtrend.

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