The moving averages are a basic tool for the technical analysis of the financial markets as they are necessary to read the graphs of the market trend.
Moving averages are a tool used by all traders, whether they are newbies to the subject or experienced investors.
This tool is in fact necessary to eliminate the noises of the market and have a clean trend, eliminating swinging trends.
A moving average is calculated over a given time frame, highlighting the price trend in the time interval that it has been decided to analyze.
For example, a 20-day moving average will indicate the average prices of the last 20 trading days, updating with the new data resulting from the new trading sessions.
Moving averages are generally used in pairs or three with different calculation periods, their crossing will generate sell or buy signals. There are various types of moving averages:
- * simple,
- * exponentials,
- * weighted,
- * adaptive.
The simple moving averages, the most used, are calculated using the arithmetic average of the prices of n periods.
The moving averages exponential, on the other hand, correspond to the simple moving average weighted by the weight of the dating of prices. In fact, more weight will be given to the most recent prices and less to the old ones.
Weighted moving averages are similar to exponential ones in that prices are multiplied by the number of the day the price corresponds to.
For example, the closing price of 3rd day will be multiplied by 3, the 4th by 4 and so on to give more weight to the most recent prices.
Adaptive moving averages on the other hand are moving averages that adapt to market speed making the averages more reliable in generating signals.
