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Moving Averages: Guide To The Technical Indicators
Moving Averages: Guide To The Technical Indicators
MOVING AVERAGES
Newbie traders and even seasoned investors with a
fundamental bias often become overwhelmed by the
technicals. But before you develop “analysis paralysis”
it’s important to remember that most technical indicators
are neither too complex nor too sophisticated for the
average retail trader to use.
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A Beginning Trader’s Guide to the Technical Indicators
For more information on this subject, watch the video above.
The two most popular types of moving averages are the Simple Moving Average (SMA)
and the Exponential Moving Average (EMA). These moving averages can be used to
identify the direction of the trend or define potential support and resistance levels.
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A Beginning Trader’s Guide to the Technical Indicators
direction and spot trends, compared to a chart that just shows the open, high, low and
close of the price chart’s timeframe
You don’t need complex math to compute a SMA. Actually, they are very simple to
figure. Let’s say one is trying to calculate the 6-day moving average of closing prices.
Add up the last 6 days and divide the total by 6 to determine the moving average.
The average “moves” because every day the oldest day is dropped off as the current
While the math is seemingly simple, this technical tool is widely available in all standard
charting software packages. There will usually be a function to change the parameter
of periods, such as a 20-day or 10-hour (depending on chart time frame) for the moving
average.
Because of this lagging effect and the desire for traders to have a leading indicator,
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A Beginning Trader’s Guide to the Technical Indicators
VantagePoint’s team spent years researching and millions of dollars to create a
Predicted Moving Average (PMA).
A 6-day PMA of closing prices takes the past four days of closes, adds two days of
predicted data, and then divides that total by six.
Six days are still averaged, but day five and day six are predicted. This minimizes, if
not totally eliminates, the lag.
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A Beginning Trader’s Guide to the Technical Indicators
Still, even with the weighting of the EMA, it is still a lagging indicator. Only technical tools
like VantagePoint’s PMA are leading indicators that predict market behavior.
Moving averages can be a useful tool for those looking to identify what type of trend the
market is in and when a turning point has occurred.
Again, traders will never catch exact tops or bottoms with moving averages, as they are
lagging indicators. However, an indicator like VantagePoint’s Predicted Moving Average can
take your technical analysis to a whole different level and literally put you days ahead of other
traders.
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A Beginning Trader’s Guide to the Technical Indicators