VIDEO MANUAL - Moving Averages - How to Use Them and Which Ones to Use by Toni Hansen

VIDEO MANUAL - Moving Averages - How to Use Them and Which Ones to Use by Toni Hansen

31 October 2014, 15:11
Ray Steve
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There are 4 main types of moving averages:
  1. Simple moving average
  2. Exponential moving average
  3. Smoothed moving average
  4. Linear weighted moving average
The difference between these 4 moving averages is the weight assigned in to the most recent price data.

Simple Moving Average - SMA

Simple moving averages apply equal weight to the prices used to calculate the average

Simple moving average is calculated by summing up the price periods of a financial instrument and this value is then divided by the number of such periods. For example simple moving average 10, adds price for the last 10 periods and divides them by 10.

Exponential Moving Average - EMA

Exponential moving averages apply more weight to the most recent price data.

Exponential moving averages are calculated by assigning the latest price values more weight based on a percent P, multiplier that is used to multiply and assign more weight to the latest price data.

Linear Weighted Moving Average - LWMA

Linear weighted moving averages apply more weight to the most recent price data.

Linear weighted moving average - the latest data is of more value than earlier data. Weighted moving average is calculated by multiplying each of the closing prices within the price series, by a certain weight coefficient.

Smoothed moving average - SMMA

The smoothed moving average is calculated by applying a smoothing factor of N, the smoothing factor is composed of N smoothing periods.

The example below shows SMA, EMA and LWMA. The smoothed moving average is not commonly used so it is not shown below.

The Linear weighted moving average reacts fastest to price data, followed by the exponential moving average and then the SMA.


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