Moving averages explained for beginners (and 'experts')
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Moving averages are 'averages of historic price points'.
They are used to filter out "noise"(price fluctuations) and simplify price movements.
For example:
A moving average of 3 on a daily chart means: you take the previous 3 day-prices, add them up and divide by 3.
Day 1 = 10$
Day 2 = 20$
Day 3 = 15$
------------------
total = 45$
divided by 3 = 15$ averaged
So the price was 15$ on average for those 3 days
Easy right ?
Often two "moving averages" are used together.
Traders really should, get institutionalized "moving averages". Those being MA 50 and MA 200 (MA 200 of course being the average of four consecutive MA 50's)
Every now and then those two averages can cross each other.
If the shorter MA (50 in this case) goes under the longer term (200 in this case) we call that a Death Cross, that signifies a sharp drop in price (which of course already happened since you are using historic prices and thus you are too late to act on it accordingly)
If the opposite should happen, the longer MA goes over the shorter one, that is called a Golden Cross and is used as a buy-signal (which you should already have done and now should sell to the people seeing that delayed indicator)
Moving averages also can act as "resistance" and "support" (because its own delayed historic diluted data can do that).
First here is MA50 and MA200 on the daily chart.
We can clearly see that the price is under the MA50 and MA200 and that MA50 is acting as "resistance", which is of course NOT GOOD
But not to worry, if we change the timebase to 3 Hour (or 4Hr), we can now observe that MA50 is actually "support"
Or we could even change to 1 Hour and now MA200 is support, which is really a good sign. You can see how nice it bounced up there
One can without doubt recognize how important MA50 is as a resistance here, especially just before December 29, it really struggled there.
So, to conclude "moving averages" are really great and useful, for a tool.
They are used to filter out "noise"(price fluctuations) and simplify price movements.
For example:
A moving average of 3 on a daily chart means: you take the previous 3 day-prices, add them up and divide by 3.
Day 1 = 10$
Day 2 = 20$
Day 3 = 15$
------------------
total = 45$
divided by 3 = 15$ averaged
So the price was 15$ on average for those 3 days
Easy right ?
Often two "moving averages" are used together.
Traders really should, get institutionalized "moving averages". Those being MA 50 and MA 200 (MA 200 of course being the average of four consecutive MA 50's)
Every now and then those two averages can cross each other.
If the shorter MA (50 in this case) goes under the longer term (200 in this case) we call that a Death Cross, that signifies a sharp drop in price (which of course already happened since you are using historic prices and thus you are too late to act on it accordingly)
If the opposite should happen, the longer MA goes over the shorter one, that is called a Golden Cross and is used as a buy-signal (which you should already have done and now should sell to the people seeing that delayed indicator)
Moving averages also can act as "resistance" and "support" (because its own delayed historic diluted data can do that).
First here is MA50 and MA200 on the daily chart.
We can clearly see that the price is under the MA50 and MA200 and that MA50 is acting as "resistance", which is of course NOT GOOD
But not to worry, if we change the timebase to 3 Hour (or 4Hr), we can now observe that MA50 is actually "support"
Or we could even change to 1 Hour and now MA200 is support, which is really a good sign. You can see how nice it bounced up there
One can without doubt recognize how important MA50 is as a resistance here, especially just before December 29, it really struggled there.
So, to conclude "moving averages" are really great and useful, for a tool.
Note
Something i observed about a week ago on someones chart.This time it's an "Exponential moving average", that is special because it weighs in heavier on the more recent prices.
Only 78 candles or wicks got ABOVE EMA50 .. (if i didn't miscount).
It has only pierced/broken that "resistance" (or WALL as some call it) on 11 separate occasions, that's only about once every month.
With a total of 300 days, that is 26%. Again real heavy "resistance" from a "moving average".
Note
A "moving average" is nothing more than your shadow following you, sometimes you step over it, sometimes it hides behind you.BUT YOU CERTAINLY DON'T FEEL IT'S RESISTANCE, CAN'T STAND ON IT'S SUPPORT OR EVEN TRIP OVER IT!
Note
Decisions, decisions ...EMA 200 (red) says "ABANDOND SHIP, WE'RE ALL GONNA DIE"
MA 200 (blue) says "Relax, we have good solid support"
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