Lesson #31 Moving Average Summary

• Moving Average is a good method to smoothen price movements.

• The two main types of Moving Average are Simple Moving Average and Exponential Moving Average. These are the commonly used types but there are still other types of moving averages.

• Simple moving averages are straightforward but this can be easily affected by market spikes.

• Exponential moving averages focus more on recent price periods and are good indicators of existing traders’ activities.

• You have to put emphasis on what the traders are doing now rather than on what they previously did a month ago.

• Simple moving averages however are generally smoother than Exponential moving averages.

• Long period moving average is smoother compared to short period moving average.

• You can expect quick price response from choppy moving averages. You can easily spot trends using choppy moving average. You are at risk however from numerous fake outs due to temporary market spikes.

• You can be saved from costly fake outs if you use smooth moving averages. However, these are slower to respond to price movements. Because of slow reaction, you might miss out some profitable market opportunities.

• You will be able to see long term and short term price movements by plotting different moving averages. In this way, you can see both sides of the moving averages.