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Simple Moving Average

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The SMA is one of the basic tools of technical analysis and other indicators derived from it and Concepts of very frequent use. It is an average of the closing prices of n days, to be recalculated as new contributions are incorporated, maintaining for calculating consistently the same number of closures indicating the period.

What is? Its main function is to smooth the data series that is calculated, allowing to observe more clearly the current direction, ie trend. By your way of calculating the moving average is a follower indicator, not a leader. And has a delay of many sessions as indicating the period of calculation. Allows you to design trading systems, buying/selling automated. Establish dynamic support and resistance in different timeframes.

How is it used? Depending on the period that appears the investment it adjusts the term of calculation of the mobile average. So for short term calculation period ranges from 3 to 25 days, for the medium within 30 to 75 days and for the long run between 100 and 200 days. Its best feature is obtained with markets in trending, helps apply maximum investment "lengthen profits and cut losses." In flat markets or without trend its use is restricted by the large number of false signals generated. It can be used as a trend indicator for the term to be analyzed according to their period. If prices are above the moving average will be in uptrend, if prices are below the moving average will be in downtrend. It is possible to use for generating signs of purchase when the prices cut to the rise the value of the mobile average. A sign of sale is generated when the prices cut to the fall the value of the mobile average.

Suggestion of Trading: To filter out false signals crossing the price with the simple moving average can be used bands% on average. Are obtained of add and subtract the average between 1% and 3%. Then get buy signal when the price crosses the upper band and sell signal when the closing price crosses the lower band. The benefit of correct operations is reduced, but is compensated by the costs that we save ourselves of the false signs.

SMA = Simple Moving Averages; EMA = Exponential Moving Averages

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Erick Gálvez
Author: Erick GálvezWebsite: http://www.asdforex..comEmail: This email address is being protected from spambots. You need JavaScript enabled to view it.
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ASDForex manager and professional trader since 2008. I am also Aleforex.com manager where you can view the services that I give
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