Tuesday, September 17, 2013 by James Franklen
If you're new to options trading, a unique look at the candle price chart you will be dizzy. Usually when direct trading, you are immediately offered a direct graph with minimum time scale, i.e. see you candles price for each minute of 15, 5 or 1. You would be able to see very short-term trends in these measures, prices upward during a small period and then goes backwards in the following section.
The question that arises is how it all understandable? How you're supposed to make strong tendencies, how far behind should go? With a little research, you would know how far in time, that you have to go, and in which pairs to obtain significant trends in training. You would still lack the unobstructed view of the trend, and the averages to do exactly the thing.
Moving averages smooth the pricing data. It clears all the haze of the highs and lows, and shows you the exact trend. Keep in mind that moving averages do not predict the direction of the price; Instead they explain the current and that too with a lag. More importantly, they are the building blocks for other types of analysis techniques such as MACD and Bollinger bands.
There are two types of moving averages, moving averages simple (SMA) and moving average exponential (Mme). The SMA is simpler to calculate; you take courses of closing in recent days and divide them by the number of days that you have taken courses of closing of. ADM is on a single day, to make 'on the move' lower you the price of closure in the back and instead include the closing price of the last day. The point to note here is that, the SMA takes effect of each price all also, it makes no distinction between them.
On the contrary, EMA, also known as the weighted moving average, gives more weight to the last price and less than previous. In this way, you include a higher incidence of recent price changes. For the EMA, you must decide the exhibitor or smoothing factor, which is 2 / (No. days + 1). The number of days is the period of EMA you want to have. After that, you need the EMA, or if this is not available, the ADM, "yesterday", if you calculate EMA "today." The last thing you want to know is ' today closing price.
So if you want to calculate 200 day EMA for a given asset, which has EMA a standby 110 cents and the price closes for today is to 130 cents, you would be calculated as follows:
Moving average exponential of today = exponent X (today / the day of closing of Price - prior day / EMA yesterday) + the previous day / EMA yesterday.
= {2 /(200+1)} X (130-110) + 110
= 110.2
Once plotted on the graph of price, the SMA and EMA can help you identify trends, explaining price movements or even tell you about supports and resistance.
Tags: moving average calculation, the moving average of the EMA, Moving aveages mobile average SMA
No comments:
Post a Comment