Moving Average - How to Properly Work with the Indicator

Published: 26 September 2018 Updated: April 21, 2023

About the indicator Moving Average All traders, without exception, know it - it is the most popular technical analysis tool market, which can be found in almost any trading strategies. But how to really work with it correctly to get the most out of MA?

In this article we will consider all the options for working with this unique indicator, so you can "squeeze" the maximum efficiency from its movement on the chart.


Principle of Moving Average

Work logic Moving Average is very simple - it assesses how far the value of an asset has deviated from the average value over the period it has specified. For example, if you set a period of 30, it will compare to the current value the last 30 prices in the market. In this case, the older the evaluation period, the more accurate are the indicators of this indicator, because a larger segment of the market history will be taken as an evaluation.

Working with the moving average, the trader must choose two conditions - the MA period and its type: simple, exponential, triangular, weighted and other types, depending on the options available in the trading terminal. By the way, for this indicator to be most useful to you, we recommend trading on a platform, where the maximum number of its types is represented. In our article we will use the following terminal as an example PocketOption. The chosen chart interval also affects the efficiency of the MA. For example, there are timeframes, on which it is inexpedient to use the MA with a long period.


Main MA signals

In fact, the signals of this indicator depend on the period with which you use it, but in general they can be divided into three types:

  • Price crossing of the MA muving - indicates a global trend break
  • MA moving average relative to the price - shows the current upward or downward trend
  • The intersection of two MA moving averages with each other - shows a break of a short-term trend

That is, this indicator can inform us with its movement several important events in the market, so everything will depend on the event on which you want to make a deal. Let's look at several examples of using the above signals.


MA line crossing by the quotes

This signal can be obtained by setting the indicator period of 30 to 100 when using a timeframe of 30s to M5. In this case, this signal will allow you to understand that the trend has changed the direction of construction, and it's time to make a deal in the direction of the new market movement. This is how you will see this moment - the deal should be made after the close of the candle, which has broken through the MA line with a prediction of the direction of the breakdown:

Moving Average - How to Properly Work with the Indicator

Location of the Moving Average in relation to price

The signal of such format is, as a rule, one of the list of obligatory conditions for transaction opening. To obtain such a signal, the MA, depending on the timeframe, set the period from 100 to 200. For example, the MA should be positioned under the price when the main combination of signals appears in order to open a deal UP. This is what it might look like on a chart:

Location of the Moving Average in relation to price


Intersection of two or more MAs with each other

If you want to trade on the breaks of short-term trends, you cannot do without the second slightly higher MA for a more accurate signal. In this case, MAs with periods from 3 to 15 are used. Of course, you could do without second much less MA 3But since trading will be done on small changes in price movements, other moving averages are also needed as confirmation. This is what this format will look like on the chart.

Intersection of two or more MAs with each other


Why do we need other types of Moving Average

In fact, there are two main varieties of simple arithmetic - SMA:

  • Exponential - exponential MA, which takes later values of the value for calculation. Due to this feature, this type reacts faster to changes in market movements, i.e. it is more dynamic. It is best used on short TFs.
  • Weighted - weighted MA also evaluates the market at later prices, but the obtained values are multiplied by the period specified to him and then divides the resulting amount of the entire value by the period itself. It is better to use on long TFs.

EMA and WMA also became the basis for such types as Hull, 2- and 3-exponential, Time Series, Veriable, WellesWilder, Triangular, Vidya - these types differ, basically, only in smoothness. Each type has its own efficiency in a certain situation and in combination with another indicator. In any case, this indicator, in order to get more accurate trading signalsIt is better to use in conjunction with by oscillatorsthat would filter out their signals.

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