In , there’s an indicator called moving average which calculates the average closing price over a set period of time. If the market is too choppy, often a moving average can help smooth things out and provide a clearer visual of what’s going on in the market and an indication as to where the momentum is whether it’s a bear market or a bull market.
How is moving average calculated?
A moving average is calculated by calculating the closing prices and then divided by the set number of days e.g. 100 day moving average takes into account the closing prices for the last 100 days and then divides it by 100 to give you the moving average. Once you have enough data, you will be able to plot a smooth line which you can use to help with your analysis.
How do you use moving average?
In very simple terms: if the price is above the moving average, you can assume that the market is . If price is below the moving average, you can assume that the market is .
The way we use the moving average is that we see it as dynamic resistance/support.
Dynamic support – When price is above the moving average and approaches it, the moving average will act as a support base where price could potentially bounce off.
Dynamic resistance – when price is below the moving average, price may come up to reject the moving average before moving lower.
Transition from to (vice versa)
We found that one of the most probable moments where the moving average acts as a dynamic is when price impulses through the moving average and then retests it. It is possible to gain an entry on the retest provided there are other confluences playing a part such as previous structure or price action.
What moving average do we use?
100 and 200 moving average.
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