Moving averages bring clarity to the volatile mess crypto-traders are cursed by. They’re the simplest of all the indicators, and you’ll see them on pretty much every trader’s TA setup.
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Key points on moving averages
- Moving averages are the most popular indicator
- They are lagging indicators
- They help smooth out price changes
- They are great for identifying trend
- They are perfect for building base simple trading strategy on
- There’s quite a broad spectrum of moving averages (as you’ll soon discover)
What are moving averages?
While they’re seemingly simple to read, it’s best you just confirm you understand what’s happening when you see them.
- Moving averages take the average price of the last
nis called the ‘period’ — for example, ‘100 MA’ is a 100-period moving average, it takes the average close price of the last 100 candlesticks.
- As new candlesticks form, the period window moves forward and takes the average price.
The different types of moving average
Yep, there’s a few different types of moving average. They all serve somewhat the same purpose. But, you’ll find some moving averages are more receptive to price movements than others.
Simple moving average
The simple moving average, or ‘SMA’, is unironically the simplest moving average of them all. They simply take the average close price over the last
Weighted moving average
The weighted moving average, or ‘WMA’, is where things get a bit more complex.
WMAs use a ‘weighting multiplier’ on the candlesticks’ price data. Newer price data is favoured over earlier data. Giving a more accurate depiction of the average change in price.
Exponential moving average
The exponential moving average, or ‘EMA’, favours newer data over later data — similar to the weighted moving average.
Exponential moving averages use ‘exponents’ that create a ‘weighting curve’. The curve tends to favour earlier data over later data. Different EMAs will use different ‘exponent functions’. Some functions are more weighted towards earlier data than others.