Type to use
Moving averages are commonly used to identify trends and reversals as well as identifying levels. Moving averages such the and , which are more sensitive to recent prices (experience less lag with price) will turn before an . They are therefore more suitable for dynamic trades, which are reactive to short term price movements. Moving averages such as the move more slowly providing valuable information on the long dominant trend. They can however be prone to giving late signals causing the trader to miss significant parts of the price movement.
Moving Average Crossovers: Moving average crossovers is a term applied when more than one moving average is used to generate a trade signal where traders will act when the shorter term moving average crosses the longer term moving average. A crossover occurs when the shorter term moving average crosses above the longer term moving average (golden cross). A crossover occurs where the shorter term moving average crosses below the longer term moving average (dead cross).
Price crossovers: A Price crossover is a term applied when a signal is generated where the price crosses a moving average. signals are given when the price moves above the moving average, signals are given when the price moves below the moving average. Crossover trades are more likely to enjoy success when the moving average slopes are in the direction of the trade.
Support and Resistance: Moving averages can also act as a in an uptrend and resistance levels in a downtrend. If the average is widely followed orders in favour of the trend often cluster around the average. As markets are often driven by emotion and many players trade counter to the trend expect overshoots, to this extent the average should be used to identify zones rather than exact levels.
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