Moving Average (Indicator)

A moving average (MA) is an price average calculated over a specified period of time. For example, a 10 bar moving average includes the last ten bars of a price value in its calculation. Moving Average indicator in AT 7.0 is calculated by Close price of each bar. It is one of most commonly used trend-following indicator.

Calculations

MA = (C1 + C2 + ….+ Cn) / N

Where,

 MA – Value of Moving Average

 C1, C2,…Cn – Close prices of last N days (bars)

 N – Length to average

Default Parameters

Default value of Length is 10.

Using Moving Average

A moving average (MA) is the average of a market's closing prices over a defined period of time. For example, a 10-day moving average is an average of closing prices over a 10-day period. Moving averages will not indicate an imminent trend change, but will help you determine if an existing trend is continuing by measuring the direction, or help to confirm that a trend reversal has taken place. A moving average is similar to a trend line except that the moving average curves with the movement of price. It can also provide support and resistance levels.

Basic usage of MA is following:

Crossover: It can be crossover of MA and Close price line, or it can be 2- or 3-line moving averages crossover. The advantage of using moving averages is the ability to apply 2- or 3-line moving averages on the same chart. Each average is for a different period of time, for example, a 9-day average and an 18-day average. Most commonly the shorter day (or bar) average is referred to as a fast moving average, and the longer day (or bar) moving average is referred to as a slow moving average. Doing this can provide you with buy and sell signals when one line crosses over the other line.

Stops: MA line can be used as stops – the dynamic support and resistant line.

Weighted Moving Average (WMA): In addition to the simple moving average, or a 2- or 3-line moving average, you can also apply a weighted moving average. This assigns more value to recent price data and lesser value to prices further back in time. The trend is considered to be up as long as the moving average line is rising along with the price. A close below could indicate a change in direction. A downtrend is considered to be continuing as long as the line is declining along with the price. A close above could indicate a change in direction.

Exponential Moving Average (EMA): The EMA is designed to solve both problem of the time lag with the simply average and diminished importance to the past with weighted average. It is the most sophisticated of the three types of averages.

Long-Term/Short-Term in Chart: The MA can be applied to long-term and short-term charts to give signals. No matter which indicator you use, the signals generated by long-term charts always carry more weight and they are more significant. When you are confused the directions by choppy markets, you may always apply the indicator to longer time charts to get a more clear picture of the market movement.

Long-Term/Short-Term in the length: The length of time you should use for your average depends on whether you are tracking a short term, intermediate or long term trend. Typical length is 10 days for short term, 50 days to intermediate term and 200 days for long term respectively.

Moving averages can be used with real-time/delayed or end-of-day daily price data, and can be applied to any type of chart, but works best with a bar, line or candlestick chart.

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