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MOVING AVERAGE

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MOVING AVERAGE

One of the most common and familiar trend-following indicators is the moving averages. They smooth a data series and make it easier to spot trends, something that is especially helpful in volatile markets. They also form the building blocks for many other technical indicators and overlays.The two most popular types of moving averages are the Simple Moving Average (SMA) and
the Exponential Moving Average (EMA). They are described in more detail below.

Simple moving average (SMA)  A simple moving average is formed by computing the average (mean) price of a security over a specified number of periods. It places equal value on every price for the time span selected. While it is possible to create moving averages from the Open, the High, and the Low data points, most moving averages are created using the closing price. For example: a 5-day simple moving average is calculated by adding the closing prices for the last 5 days and dividing the total by 5. 10+11+12+13+14=60/5=12 E…