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Moving averages

Moving average

Moving average is a widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random price fluctuations. A moving average (MA) is a trend-following or lagging indicator because it is based on past prices. The two basic and commonly used MAs are the simple moving average (SMA), which is the simple average of a security over a defined number of time periods, and the exponential moving average (EMA), which gives bigger weight to more recent prices. The most common applications of MAs are to identify the trend direction and to determine support and resistance levels. While MAs are useful enough on their own, they also form the basis for other indicators such as the Moving Average Convergence Divergence (MACD)

 

1) For long term we use standard 100 and 200 days moving average. (Dark blue line)

2) For short term we use dynamically moving average that is being calculated upon the number of days in the chart. (Grey line)

Explanation:
Using a dynamically calculated moving average is the correct approach, even though many swear to the standards of 4, 7, 8, 9, 12, 15,
18, 21, 23, 26, 27, 29, 32, 35, 100, 200 based on standard 1,3,6,12,24,48 and 96 months charts. But what happens with charts not having full length of history?

Mathematically solution:

Moving Average = ((Num of days/5)/2)+1

Example:

3 mnd equals approx. 66 days of history
Moving Average = ((66/5)/2)+1 => 7.6 (Equals 8 days moving average)

1 year equals approx 264 days of history
Moving Average = ((264/5)/2)+1 => 27,4 (Equals 28 days moving average)

Using dynamically approach to set the correct moving average length for short term shows particular useful when dealing with charts not having full set of historical data7

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