The SMA takes data from a set period of time and produces the average price of that security for the data set. Depending on the market and desired outcome, traders can choose which indicator will most likely benefit their setup. Despite the various types, the MAs are most commonly broken down into two separate categories: simple moving averages (SMA) and exponential moving averages (EMA). There are various different types of moving averages that can be utilized by traders not only in day trading and swing trading but also in longer-term setups. Regardless, they still have great power to cut through the noise and help determine where a market may be heading. Because these moving averages rely on past data, they are considered to be lagging or trend following indicators. This is done by smoothing out the graphs to create an easily decipherable trend indicator. As markets grow increasingly more complicated, the last decades have produced hundreds of different types of TA indicators, but few have seen the popularity and consistent usage of moving averages (MA).Īlthough there are different variations of moving averages, their underlying purpose is to drive clarity in trading charts. From traditional portfolios to cryptocurrencies like Bitcoin and Ethereum, the use of TA indicators has a simple goal: use existing data to make more informed decisions that will likely lead to desired outcomes. Technical analysis (TA) is nothing new in the world of trading and investing.
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