Mov Avg Simple

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Mov Avg - Simple

The Mov Avg - Simple indicator is part of the Moving Average group.

The method of calculating each Mov Avg - Simple line is straightforward: for each interval all of the price data for it and the stated number of previous intervals is averaged to the arithmetic mean and then plotted. The user can set the number of intervals to be averaged, as well as select the type of price data to be averaged.

The line settings are made in the Mov Avg - Simple Properties dialog box:

movavsimplprops.png

Type in the number of Periods to be averaged, and select the Data Field to be averaged from the drop down box.

Up to twenty simple moving average lines can be displayed at one time, check the boxes of the lines to be displayed.

Each line can have its own StyleColor and Weighting. The color selected for each line will be indicated in the chart's label in the top left corner:

indicmovavsimplabel.png

10 Lines or 20 Lines

The Mov Avg - Simple indicator can have as many as twenty lines.

By default 10 lines are available and their display is controlled by the commands on the Parameters 1-10 tabs.

To open the Parameters 11-20 tab in the properties dialog, select the following checkbox at the bottom of the dialog box:

indicmovavsimpextralins.gif

The additional ten lines will be contained in the Parameters 11-20 tab of the dialog. Their display is controlled in exactly the same way as the first ten lines.

Periods

The principle determinant of the appearance and utility of the line is the number of periods chosen to be averaged.

The smaller the number of periods to be averaged, the more sensitive the moving average will be to recent price changes. A larger number of periods will average a longer time-span of data, as a result each point the moving average plot will share more data, and the average will be proportionately less affected by each new data set. The resulting line will appear to be "smoother" and will be less susceptible to random "noise" (short term random price movements).

This has important implications when moving averages are used as trading indicators.

Use of Multiple Moving Averages of Different Lengths (Periods)

A common use for Moving Averages is to identify when a trend has ended or reversed.

As Moving Averages are essentially trend following, but with a delayed reaction component caused by the number of previous data that is averaged, when the trend reverses the moving average will have a tendency to continue past the change in trend.

The price chart can be said to "cross" the lagging moving average, thus signaling a change in trend.

The following graph shows a number of occasions when the general price chart can be seen to "cross" the moving average lines.

indicmovavsimplins.gif

When, and how often, a "cross" happens depends on the "speed" of the line.

A faster line is one that averages fewer previous prices. It follows the current price more closely, and therefore while more relevant to the current price, it is more susceptible to false signals of trend change. Notice that there are a number of points at which the price chart "crosses" the 5 interval line (light blue).

The slower line is less responsive, but on the few times that the price chart crosses the 20 interval line (dark blue) it is more certain that a change in trend has occurred.

Some traders use the faster line to identify possible changes in trend, and then rely on the slower line to confirm those changes, at which points the trader will enter or exit a trade.

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