Technical Analysis: Moving Average
A free video tutorial from Steve Ballinger, MBA
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08:04:20 of on-demand video • Updated January 2018
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English [Auto] An addition to our trendlines what might also help us is moving averages. And so we kind of feel for where the average pricing over a period time is moving what direction is it moving and how is it relate to me or trends or trend lines. So just look at moving averages here real quick. So here is our chart of that we were looking at before to keep consistent with the price and time. And this is a simple moving average that we're looking at here. You can see the line that's being drawn through here we've got our candlesticks you can see there's this line that goes through that is a semi or simple moving average. And really how that's figured out. And the closing price for a number of time periods and then divide that total by the number of time periods you really get price times time periods to buy it by the time periods to get to an average rate that's that would be your average. And this is a simple moving average worth looking back over in this case the 30 time periods and the simple type of calculation. There's also order called weighted moving averages and that's where you're signing more weeds and really are saying more weight to the more recent data. So let's say maybe I say more weight to my calculation to the last in this 30 day example. Me the last 15 days carry more weight than the than the first 15 days because it's more recent and thus I might say that's more important than maybe a simple moving average looking over the entire period. They both work and sometimes it's good to use both in conjunction the exchanges and the charts and things systems are out there will do this automatically for you you don't have to do the calculations but if you want it's a simple formula do the calculation and you can see how the moving average has kind of kind of making its way through through our chart here. And let's look at this a little closer here on how to interpret this and how we might make decisions. I would say a simple moving average. So when we look at the line prices that are above the line are showing strength right pricing prices prices that are below the line our weakness prices are falling. So our stock our investment our our investment is either rising or falling. So above the line strength below the line is weakness where it's crossing over the line is what's called crossover points. Right. Imagine that what a great term crossover point because it crosses the line. Well because that's what's happening something is happening. Changes in the air changes happening potentially changes in the air and when it gets to the crossover points. So if we look at this let's start with the left and work our way through and see if we can describe what is happening in this 30 day market cycle here that we're looking at. If we look at our trending line up right we're looking where we are trending up and then we have all those green candlesticks and everything is trending up the moving average is going up too because remember that period is looking backward and prices are going up. So the moving average is going up. We then have this patch where prices are starting to come down from when the average is going to start to flatten out and eventually it's going to go downward as you can see it goes downward and that's going to kind of continue that downward type of trend. Well little peaks and valleys there but it's smoothing everything out. And that's the one of the benefits of the average It smoothes everything out so you can kind of see a little bit better versus. All the scattered type of information. Now if we look at the first blue box there here on the left right at the top of where the green as you can see this is the first point where you're now starting to see prices the candlestick opening closing starting to cross the line and it's going between the line up and down between the line it's really kind of steady and therefore that you know that seven day period we were looking at. Why. Because the market is in flux. The market is trying to decide are we going to go to higher prices or are we too high and we need to pull back and go to lower prices. You might've heard the term bulls and bears the Bulls would think prices go higher. The Bears thing the prices go lower. We're in a trading range here where people are. You know these individuals are deciding and you have a bulls and bears enough trade people trading selling and buying that. You have people who are now looking at this moving average and we're now crossing the moving average line at the end of the box what happens. Well looks like the Bears won out. Prices go down. You can see they've gone. Gone down below the moving average line and they stay below the moving average line in states significant difficult one the moving average line below the moving average line. And because it's a moving average the lineup starts bending and moving to the bottom two it's not a straight line it's a moving line and stuff that's moving with it is prices go down. You think about it. They go far enough down people say [REMOVED] I should buy the market pretty low. I'll start to go back up and we might start seeing that at the bottom we're hit the big volume areas and really hit rock bottom and now starts coming back up. And we've now entered into the second yellow or second blue box there where we see prices going above and below the line. And now this is a period where we want to watch again and start seeing where the trend might emerge and as it emerges is the trend going to go down like it did previously. Or is it going to go up and that's where the moving average can help you as far as what might be going on. Because we're looking at now pricing averages over a period of time in active markets. Once again a weighted moving average would assign more weight to this recent downtrend than let's say a simple movie with just putting more weight towards the hole or does put weight anywhere it has over the overall trend. So it's taking advantage of that first 30 days ago that first big green rise. Let's look at this here if you see I draw some simple trend lines here number that point or we're wondering what might be happening with the market after we hit that peak. Well if we overload those those trend lines in the in the trend channel you can kind of see it now that we've got more information. This might tell me that we've got a simple moving average we've crossed below the hour which we picked up a bit above it but now we're crossed below it again with our very last data point there and our trendlines tend to be trending down. If I was a technical analysis trader at this point I might say Olive I might need to see a couple of more data points to see if this trend is going to continue the trend and then act accordingly or not act at all or do I think we're about to go above the moving average line and our trend might be reversing waiting for that trend to happen and then getting in that trend and riding that trend out. So we're really at if I'm looking at this chart at the far right. I think we're at a decision making point of what might be happening next and that's work moving averages and trend lines can really help you out as far as really start to understand the market and then overlaying fundamentals of things might help you choose for his or individual choices. Once again this could be a chart of a one particular cryptocurrency as an example. Now the overall market that I see in the market with this might be in the market for Bitcoin or this may be the market theory I'm you know in deciding whether boy maybe I don't buy this one. I might look for something with a better trendline. Well by this other cryptocurrency and using trendlines and simple moving averages together. Now we're going to look at next the next lessons we're going to look at some shapes and geometric shapes to help explain this people a bit more and looking for opportunities.