How to Measure a Moving Average & What It Means.
When it comes to the technical analysis, there are many different numbers and patterns traders look for. While some techniques are more technical and take a few different calculations there are other tools that are simpler.
The moving average of a commodity is one of those simpler techniques. It is an analysis tool that gives you a constant average price over a period of time. Because it is a moving average, it is constantly changing with the data.
There are different types of moving averages, and they can be calculated in different ways, but one of the most commonly analyzed is the 40-day moving average. This number takes the sum of the daily closing prices of the last 40 days and divides that total by 40. The daily average is plotted on a graph and connected to the next number, creating one flowing line that literally shows you the trend.
There are many benefits to using a commodity’s moving average to analyze the future direction. Besides being one of the simpler calculations, the data can be taken from just about any time frame, and it works for both short-term trading and long-term investing.
Trend following strategies rely on a combination of different moving averages to determine trading signals. A classic formation signaling a trend change is when the 10 day moving average line crosses over with the 40 day moving average line. Longer term trend followers might look at the 50 day moving average versus the 200 day moving average to alter their position.
There are many tools traders use to analyze the profitability and risk of a commodity, and the moving average is among the simplest. By watching the averages of the daily closing prices, you can start to see the general market trend.
Our experts discuss many strategies using moving averages and moving average cross-over in the live stream each day.