Summary: Using Moving Averages

The main purpose of the moving average is to eliminate short-term fluctuations in the market. Because moving averages represent an average closing price over a selected period of time, the moving average allows traders to identify the overall trend of the market in a simple way. There are many types of moving averages, but the most commonly known two are simple moving average SMA and exponential moving average EMA

The Simple moving averages, Which are the simplest form of moving averages, but they are susceptible to spikes.

And Exponential moving averages, it put more weight on recent prices, which means they place more emphasis on what traders are doing now.

It is very much important to know what traders are doing now than to see what they did last week or last month, as the market analysis seems to be changing.

One thing with Simple moving averages is that, they are smoother than exponential moving averages. Longer period moving averages are smoother than shorter period moving averages.

As explained earlier, Using the exponential moving average the kinda weighted average that gives more weighting or importance to recent price data, can help you spot a trend faster, but is prone to many fake outs.

While for Simple moving averages which are slower to respond to price action but will save you from spikes and fake outs. That's great!

Nevertheless, because of their slow reaction, they can delay you from taking a trade and may cause you to miss some good opportunities. You can also use moving averages to help you define the trend, when to enter, and when the trend is coming to an end.

Moving averages can be used as dynamic support and resistance levels. Moving averages are simple to use and can be effective in recognizing trending, ranging, or corrective environments. Often traders will use more than one moving average because two moving averages can be used as a trend trigger.

One of the best ways to use moving averages is to plot various types so that you can see both long-term movement and short-term movement. Hope you got all that now! So you can proceed to open up your trading charting software and try popping up some moving averages for better understanding.

But note, using moving averages is just simple. The most difficult part is determining which one to use. Thats why you should try them out and figure out which best fits your style of trading. Possibly you prefer a trend-following system. Or maybe you want to use them as dynamic support and resistance. But Anyone you choose to do, ensure you read up and do some testing to see how it fits into your overall trading plan.