​​#Education Moving averages - explanation In finance, a | FBS Analytics

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Moving averages - explanation

In finance, a moving average (MA) is an indicator commonly used in technical analysis. Calculating an asset's moving average is to help smooth out the price data by creating a constantly updated average price and identifying a trend direction.

By calculating the moving average, the impacts of random, short-term fluctuations on the price over a specified time frame are mitigated. Simple moving averages (SMAs) use a simple arithmetic average of prices over some timespan. In contrast, exponential moving averages (EMAs) place greater weight on more recent prices than older ones over the period.

How to Choose a Moving Average for Your Strategy?

The choice of moving average depends on your trading style. Here are the most popular moving averages for different types of trading:

13 EMA tells you the short-trend term of the stock. It is a handy indicator for scalpers.

20 EMA is great for trading the trend on the lower timeframes (M5, M15). The moving average makes it easier to trade pullbacks and breakouts for the day traders, acting as a support and resistance for the price.

50 EMA shows you the medium trend of an asset. Thus, it is one of the favorite indicators of swing traders.

100 EMA is attractive to middle and long-term traders because it works great as a support and resistance. It is the most accurate when used on the H4 and Daily timeframes.

200 EMA is very popular and is most important for long-term trading, acting as the primary indicator to define the overall trend of an asset.

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