Moving Average (MA): description of settings and general principles of trade instrument

MA is a trend analysis instrument. It is taken as a foundation for development of most popular oscillators and indicators (Stochastic, MACD, AO, etc.). You can define a current tendency, find advantageous points of opening/closing trading positions, and also filter out false signals, through MA.

Moving average is most popular trading instrument, which has such qualities as simplicity, flexibility and efficiency. Today, MA is available on many trading platforms, including the IQ Option.

How to set up a MA indicator for trade with IQ Option

To open an instrument settings window in trade room, click on indicator menu icon and select MA from opened list.

In open window of indicator settings, following variables are available to users, which allow:

  1. install a period for analysing current situation on market, i.e. number of candles applied in calculating instrument;
  2. select MA type;
  3. nominate a colour to indicator;
  4. set instrument line thickness.

  1. SMA (Simple MA). Curve is formed as a result of finding the arithmetic average of all closing prices within a specified period.

SMA – indicator;

CLOSE (i) – latest price of last transaction;

N – period.

  1. WMA (Weighted MA). This indicator type shows average weighted value of closing price for a specified period.

 

SUM – sum sign;

CLOSE (i) – next price of last closed deal;

i – weighting factor;

N – smoothing period.

  1. EMA (Exponential MA). Indicator is found by adding a certain fraction of current price to previous points of MA curve. In this case, a value of last closing price is most important.

EMA – indicator;

CLOSE (i) – next price of last closed deal;

P – partial price values.

  1. SSMA (Smoothed MA). Indicator shows a smoothed average price in accounting period.

Calculate arithmetic mean is:

Calculate smoothing of a simple curve:

SUM – sum sign;

SUM (1) – sum of prices of last transactions (starting from previous candlestick);

SSMA (i – 1) – SMA last closed candle;

SSMA (i) – SMA current candle except the first;

CLOSE (i) – next price of last closed deal;

N – smoothing period.

MA react differently to price fluctuations. For example SMA and SSMA are very late. These lines move a great distance from price chart during the expressed tendencies.

EMA and WMA curves are highly sensitive to price fluctuations. Therefore, an indicator goes close to price chart.

As a rule, traders to choose a type of MA, which is most suitable for accepted trading strategy.

Principle of MA operation

Many different trade strategies have been developed during the whole period of instrument existence. However, a principle of applying moving average has remained a same.

One moving curve on graph works as follows:

  • indicator crosses price chart from above, and continues to move under the price (this indicates a change in bearish trend by bullish);
  • moving average passes from below through the price, so bullish tendency is replaced by bearish.

When working with two moving curves (for example, with periods: 9; 20), you need to act like this:

  • you need to buy, when a fast MA crosses a line from bottom with a long period;
  • you should sell, if a curve with a small period passes from above through a slow MA.

Summary

Material contains only general information about indicator. You need to try different options for setting an instrument, and develop your own work strategies to better master the skills of effective trade with MA. Knowledge of old and public practices does not guarantee a success of forecasts, since a market is a dynamic phenomenon.

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future

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The financial services provided by this website carry a high level of risk and can result in the loss of all your funds. You should never invest money that you cannot afford to lose.

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