What Is a Moving Average?

The two basic and commonly used moving averages are the simple moving average (SMA), which is the simple average of a security over a defined number of time periods, and the exponential moving average(EMA), which gives greater weight to more recent prices. We use Exponential Moving Averages.

What Do Moving Averages Tell You?

Moving averages lag behind current price action because they are based on past prices; the longer the time period for the moving average, the greater the lag. Thus, a 200-day MA will have a much greater degree of lag than a 50-day MA because it contains prices for the past 200 days.

The length of the moving average to use depends on the trading objectives, with shorter moving averages used for short-term trading and longer-term moving averages more suited for long-term investors. The 50-day, 100-day and 200-day MAs are widely followed by investors and traders, with breaks above and below this moving average considered to be important trading signals.

TECHNICAL CHARTS EXPLAINS

What Is Relative Strength Index – RSI?

The relative strength index (RSI) is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a currency or other asset. The RSI is displayed as an oscillator (a line graph that moves between two extremes) and can have a reading from 0 to 100. The indicator was originally developed by J. Welles Wilder Jr. and introduced in his seminal 1978 book, New Concepts in Technical Trading Systems.

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