Moving Average ( MA)
Moving average (MA) is one of the mostly used technical indicator. So how to use it in the chart is one of the biggest question. Lets find out!!
There are usually 4 types of MA:
1. Simple MA
2. Exponential MA
3. Smoothed MA
4. Linear weighted MA
So which MA we should use in chart? It is a big question, isn’t it? Ok, sit tight, I am telling you a secrate…..
The MA which is closer to price is the best. So according to this theory, exponential MA ( EMA) is the best MA to use in the chart.
now that we understand which MA is best, let’s proceed to next question. which EMA is best? Is it 10 EMA, 20 EMA, 50 EMA or any other EMA?
Ok, to answer this question some will say that 10 EMA is the best, some will say 20 EMA, some likes 50 EMA. So what is the right answer?
Let’s move on to the topis.
There is no such thing that which EMA is best. In some chart we see price respects 10 EMA. Look to the picture below:
In the picture above we see a beautiful downtrend going on and price goes down every time when it touched 10 EMA. So 10 EMA is best for this chart.
now have a look to the below chart:
In the above chart we see that a clear uptrend going on and price has gone up every time price touched 20 EMA. So for this chart 20 EMA is the best.
So the main thing that I am trying to say is, we have to plot the common EMAs into our chart, like 10 EMA, 20 EMA, 50 EMA etc. After that we need to find
out which EMA is respected by the price in that time. Isn’t it clear ? see the picture below:
You see, I have ploted 3 common EMAs in this chart and find out which one is best for this chart. So I found price always gone down touching 10 EMA. So I will take trade next time when price touches or comes closed to 10 EMA.
Now the most important talk about moving average :
1. Moving average does not work always. It only works on trending markets, not in sideway markets.
2. Using only MA in your chart is not reliable. please use it with an oscillator like RSI, Stochastic, MACD etc. for better result.