MA represents a technical indicator that is among the most widely used due to its simplicity and effectiveness. This article will describe and explain the meaning of moving average on iqoption and how works in trading.
The moving average relies on previous prices and is categorized as an indicator following trend. It basically measures the average price related to a certain trading instrument within a defined period of time.
The major function of the moving average is the reduction the noise of price and smoothen the action of price. In reality, the main idea related to indicator is represented by 4 various types: simple moving average (SMA), exponential moving average (EMA), weighted moving average (WMA) and smoothed simple moving average (SSMA).
Simple moving average and exponential moving average are two most commonly applied variations of the moving average. SMA represents a simple average value of the prices of an asset within a certain time period. Meantime, EMA focuses on prioritizing recent prices via assigning bigger weights to them. WMA assigns the highest importance to the candlestick that is most recent. SSMA doesn’t concentrate on a certain time period and, hence is rarely applied for trading.
Video what is Moving Averages?
Video how works Moving Average indicator
EMA (yellow) and SMA (orange) with a period equal to 14 plotted on the EUR/USD price chart
Here are the steps for the indicator set inside the IQ Option platform:
1. Find the “Indicators” button in the bottom left corner of the screen, click on it and then select “MA”.
Set up of the indicator. Step one
2. Open to the “Set up & Apply” tab.
Set up of the indicator. Step two
3. Select the preferred type of MA, adjust the period of time and then click “Apply”.
Based on the general rule, a standard moving average with a longer period of time is applicable for cases where it is required to determine the long-term trends. Meantime, the short-term trends can be traced with help of an EMA of a shorter period. Short-term EMA looks more interrupted, while long-term SMA appears to be smoother.
Regardless the status of a basic technical instrument, moving average contains a number of useful applications in trading on practice. The most common application identifies the existing trend. Basically, it allows the trader to see the clear picture behind the occasional fluctuations of prices. In addition, MA can also be utilized in a form of resistance line and dynamic support as well. The general principle relies on beginning to sell once the price reaches the moving average line from below and to start buying once the price chart is located above the MA line and reaches to it gradually.
Locating entry points via MA
In addition, a number of complex indicators like MACD, Bollinger Bands and the McClellan Oscillator are also created on basis of moving averages.
As an indicator based on previous performance of the price action in the past, the MA (moving average) is not able to predict adequately neither the direction of the trend in future, nor the strength of it. All the facts listed above absolutely don’t conclude that MA is absolutely useless. Through analysis of the past, it becomes possible to receive the necessary information for the predictions in future. Likewise, MA is not able to make an accurate forecast of future events, however it can assist traders to perform the forecast by themselves.
The moving average (MA) is available in many forms and represents a straightforward and at the same time powerful tool. Every form of MA is the most fit-for-purpose to accomplish the task. However, don’t get fooled by the simplicity of MA, because this type of indicator requires a thorough practice in order to attain effective application and results.