Moving average is an average of price closes over a certain amount of time, so at a base level they rise when price rises and fall when price falls, so why are they important? Because they give you a sense of the average direction of price over a certain amount of time, if you take the chart at face value you are not even witnessing one price close at that specific moment in time! unless you are then well done you lol, so the moving average is giving us data of maybe 89 or 50 or 200 ect, this overall analysis of the trend can defiantly aid your decision making, for example if you use two moving averages like the ma8 and ma89, what we can look at is the moving average MA8 reverting back to test the baseline which is the MA89 in this example, so price is now attempting to some extent to change trend, if it breaks lower than the baseline the line will start falling! MA89 will start declining as negative closes come in and alter the formula, that is why these areas can offer great buying opportunities or selling depending which side of the baseline you are, Price will test the baseline and bounce in strong trends before price will eventually break the baseline down the line. I will follow this post up with a post on moving averages being used on indicators now we have the first bit out the way.
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I will continue this little series of posts in an algo building format, detailing layers of a system and how to increase probability of your trades working!
