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November 22, 2009 5:34:33 AM EST
Technical Analysis
Moving Average (MA)
Moving averages are one of the most commonly used technical tools. They follow the trend, smooth the normal fluctuations of the data, and clearly signal long and short positions to the investor.
This study displays moving averages as the normal crossover trading system. You may select up to three different averages.
Most investors and charting services use three moving averages. Their lengths typically consist of short, intermediate, and long-term. A commonly used system is 4, 9, and 18 intervals. An interval may be ticks, minutes, days, weeks, or even months; it depends upon the chart type.
The normal moving average crossover buy/sell signals are as follows. A buy signal is flashed when the short and intermediate term averages cross from below to above the longer term average. Conversely, a sell signal is issued when the short and intermediate term averages cross from above to below the longer term average.
You can use the crossover approach with only two moving averages, but market technicians suggest longer term averages (a longer interval) when trading only two moving averages in a crossover system.
This study displays moving averages as the normal crossover trading system. You may select up to three different averages.
Most investors and charting services use three moving averages. Their lengths typically consist of short, intermediate, and long-term. A commonly used system is 4, 9, and 18 intervals. An interval may be ticks, minutes, days, weeks, or even months; it depends upon the chart type.
The normal moving average crossover buy/sell signals are as follows. A buy signal is flashed when the short and intermediate term averages cross from below to above the longer term average. Conversely, a sell signal is issued when the short and intermediate term averages cross from above to below the longer term average.
You can use the crossover approach with only two moving averages, but market technicians suggest longer term averages (a longer interval) when trading only two moving averages in a crossover system.
Parameters:
- Period1 (4) - the number of bars, or interval, used to calculate the first moving average.
- Period2 (9) - the number of bars, or interval, used to calculate the second moving average.
- Period3 (18) - the number of bars, or interval, used to calculate the third moving average.
Computation
The formula to calculate a moving average is as follows:
Mat = (P1 +... + Pn) / nFutureSource computes the average of the past n intervals using the price specified for that period. Now use real values to compute a five interval moving average. If you assume the following prices, the calculations are:
- Mat is the moving average for the current period,
- Pn is the price for the nth interval
- n is the length of the moving average.
MA = (7380 + 7375 + 7385 + 7390 + 7395) / 5As you can see, it is a simple process. It does become rather tedious as you repeat this process several hundred times for a single moving average. That is why you have FutureSource. It does the work, and you perform the analysis.= 36925 / 5= 7385