the moving average
TRANSCRIPT
The Academy of Financial Trading
The Moving Average
Moving Average explained
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Risk Warning
What is a moving average in financial technical analysis?
In its simplest form a moving average is just an arithmetic mean of values shown as lagging on a chart
Moving average
Most traders who are using retail and oversimplified methods tend to use moving average crossovers to signal chart reversals
It really just measures the changing of a market’s price relative to time – with a slight lag
It can be used with moving averages of other time frames to signal entries and or exits
Moving Average explained
The Simple Moving Average
It is calculated ‘simply’ by adding together the prices over a set period of days ad then dividing by the number of days over which this is measured
It is slightly lagged though as we will see upon further inspection in a moment
Traders using these methods can often be over reliant on a simple indicator that can of course work in some cases, but has an insufficient accuracy level and as such isn’t something the professionals favour
Moving average
Moving Average explained
The Conclusion…
Too simple – certainly moving averages are useful, but as a means to an end are insufficient
They have a low accuracy but can be correct – as traders we want to capitalise as many opportunities as possible – moving averages are only correct a very small amount of the time
They can be tough indicators to combine stop losses with or specific exit points as they are slightly lagged
Moving Average
Overall perhaps a useful tool for momentum but insufficient for using in a long term strategy and over a broad range of asset classes
Moving Average explained
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