Hey guys, let me ask you a quick question.
Take a look at this chart with a 200 exponentialmoving average and try to find out what determined the price to reverse right in this area andwas unable to move higher? What hides there and what is so importantin that area that made the price reverse and go the other way? You could say that this is an area of resistancefrom the previous swing, and you would not be wrong.
But there also something else hiding aroundthat area.
And that’s another variation of a 200 movingaverage, and more specifically the 200 Hull moving average.
And here it is, a perfect short opportunity, at an area of confluence, with the previous swing and the 200 Hull moving average.
I‘m sure that many of you don’t use othertypes of moving averages besides the simple and exponential ones, but in this video, we’lldiscuss about the other moving averages you should start paying attention to if you wantto spot this kind of areas on your charts.
So, the moving average is probably the mostwell-known and heavily used indicator in technical analysis because it effectively captures thetrend in an easily identifiable manner.
Moving averages are used to calculate theaverage value of the price over a determined period of time and are extremely popular amongtrend following traders.
Here are the main moving averages used bytraders: Simple moving average – SMAThe simple moving average (SMA), the most common one, represents an average of the closingprice over a specified number of periods.
The simple moving average is more stable andsignals the changes in price movements in slow fashion.
For you to see the differences between themoving averages, we’ll plot these averages on the same chart and we’ll use a 50 periodin our analysis.
Exponential moving average (EMA)Then we have the exponential moving average (EMA).
EMA gives a higher weighting to recent prices.
The shorter the EMA’s period, the more weightthat will be applied to the most recent price.
The calculation method of an exponential movingaverage is much more complicated compared to a simple moving average.
The most important thing to remember is thatthe exponential moving average is more sensitive to the recent price dynamics.
Triple exponential moving average – TEMANow, things begin to get interesting.
Here we have the triple exponential movingaverage – TEMA.
The triple exponential moving average (TEMA)seeks to reduce the lag of a typical exponential moving average by tripling the weighting ofrecent prices.
TEMA responds to market movements quickerthan the SMA or EMA.
Then, we have the adaptive moving average– AMA The adaptive moving average (AMA) was createdto improve the original exponential moving average.
The adaptive moving average multiplies theweighting of an EMA by a volatility factor.
Thus, AMA adapts more quickly to the marketby signaling when volatility conditions change.
Its main advantage over other moving averagesis the fact that filters the noise in the trend and automatically changes its speedconsidering the market volatility.
Then, we have the Hull moving average – HMAHull moving average (HMA), was developed by Alan Hull, is a fast moving average, responsiveand with reduced lag.
Hull used several weighted averages in calculatingthis moving average and claimed that this formula reduces market lag and increase smoothnessat the same time.
Another type of moving average is the weightedmoving average – WMA The weighted moving average (WMA) was designedto find trends faster but without whipsaws.
The weighted moving average offers more relevanceon recent price moves and reacts more quickly to price movements than the simple movingaverage or exponential moving average.
And finally, the Jurik moving average – JMAJurik moving average (JMA) is used by some institutional traders.
Jurik claims that the jma is a powerful adaptivetracker that can smooth time series data with very a small lag, no overshoots and no oscillations.
Traders use different settings of moving averagesfor different reasons.
Some are interested in the long-term trend, others want to trade based on the short-term trend.
The length input of a moving average dependson the objectives of the trader.
Shorter moving averages are used for short-termtrading while longer-term moving averages are used by long-term investors.
Taking into account the length of a movingaverage followed by traders, there are 3 categories of moving averages:First is the long-term moving averages – 200EMA, 365 EMAThe most common exponential moving average is the 200 EMA and many traders apply it ondaily charts.
It is believed that many institutions likebanks, hedge funds, forex dealers are following this indicator.
If we take a look at this indicator on anycurrency pair, commodity, market index or even cryptocurrencies, we can immediatelysee its value.
Then, the medium-term moving averages – 50EMA, 100EMA Many traders prefer to use the 50-period movingaverage (50EMA).
This is considered a faster moving averageas fewer input periods are used.
The primary effect is that this moving averagewill react more to medium-term movements.
50 EMA is considered one of the most effectivetrend indicators, offering also dynamic support and resistance levels on a chart.
Also we have short-term moving averages – 10EMA, 20EMA Short term mas are preferred by traders thatwant to trade with current market momentum.
The most common short term exponential movingaverages are 10EMA and 20EMA.
These EMAs react the fastest to price movements.
Fibonacci moving averages – 5, 8, 13, 21, 34, 55, 89, 144EMAs.
Some traders often take their input valuesfor EMAs from the Fibonacci sequence.
Most common Fibonacci-based exponential movingaverages are 5EMA, 8EMA, 21EMA, 55EMA, 144EMA and so on.
Traders must keep in mind that exponentialmoving averages are lagging indicators as they are based on past information.
200MA will have a much greater lag comparedto a 50MA because it includes market prices for the past 200 periods.
The short-term EMAs respond more quickly tonew price changes, but at the same time offer more false signals.
So, a trader must find a balance when usingexponential moving averages.
Choosing one of the types of moving averagesdepends directly on the style and preferences of each market participant.
A simple moving average responds more slowlyto new price changes, while exponential moving averages or weighted moving averages providea larger number of trading signals, many of which may be false.
So, it all depends on your trading style andyour trading objectives.
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Until next time.