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Moving average smooth the price data to form a trend following indicators. Ā They do not predict price direction, but rather define the current direction with a lag.
A simple moving average is a simple or airthmetic moving average that is calculated by adding a closing price for the security and the number of time periods and then dividing the total no of time period
A moving average is a trend-following or lagging indicator because it is based on past prices.
The two basic and commonly used MAs are the
1. Simple moving average (SMA)Ā which is the simpler average security over a defined number of time periods, and the
2. Exponential moving average (EMA) which gives bigger weight to more recent prices.
- Moving average smooth the price data to form a trend following indicator .
- Moving average can be used to identify the direction of the trend or define potential support & resistance levels.
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