different types of moving averages forex
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Different types of moving averages forex

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Learn more about the technical indicators in Technical Analysis made easy course. For hands on analysis on the Moving Average, check out our technical scans on web. Elearnmarkets ELM is a complete financial market portal where the market experts have taken the onus to spread financial education. ELM constantly experiments with new education methodologies and technologies to make financial education effective, affordable and accessible to all.

You can connect with us on Twitter elearnmarkets. The articles on various topics such as Moving Averages etc. I prefer to use these blogs as a traders dictionary on concept development and trading improvement hand hold. Also it helps beginners get clarity in their though process while trading while at the same time refreshes trading usage and concepts for regular traders.

Your email address will not be published. Continue your financial learning by creating your own account on Elearnmarkets. Remember Me. Explore more content for free at ELM School. Courses Webinars Go To Site. Home Technical Analysis. March 31, Reading Time: 7 mins read. Table Of Contents. Simple Moving Average: 2. Tags: indicators of technical analysis moving average technical basics Weighted moving average.

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Keep Reading! Ashish Raje says:. Anoop Raaj says:. Rajan says:. Chandra prakash says:. Leave a Reply Cancel reply Your email address will not be published. Follow Us. Download App. There are four different types of moving averages: Simple also referred to as Arithmetic , Exponential , Smoothed and Weighted. Moving Average may be calculated for any sequential data set, including opening and closing prices, highest and lowest prices, trading volume or any other indicators.

It is often the case when double moving averages are used. The only thing where moving averages of different types diverge considerably from each other, is when weight coefficients, which are assigned to the latest data, are different. In case we are talking of Simple Moving Average , all prices of the time period in question are equal in value. The most common way to interpreting the price moving average is to compare its dynamics to the price action.

When the instrument price rises above its moving average, a buy signal appears, if the price falls below its moving average, what we have is a sell signal. This trading system, which is based on the moving average, is not designed to provide entrance into the market right in its lowest point, and its exit right on the peak. It allows to act according to the following trend: to buy soon after the prices reach the bottom, and to sell soon after the prices have reached their peak.

Moving averages may also be applied to indicators. That is where the interpretation of indicator moving averages is similar to the interpretation of price moving averages: if the indicator rises above its moving average, that means that the ascending indicator movement is likely to continue: if the indicator falls below its moving average, this means that it is likely to continue going downward.

Simple, in other words, arithmetical moving average is calculated by summing up the prices of instrument closure over a certain number of single periods for instance, 12 hours. This value is then divided by the number of such periods. Exponentially smoothed moving average is calculated by adding of a certain share of the current closing price to the previous value of the moving average. With exponentially smoothed moving averages, the latest close prices are of more value.

P-percent exponential moving average will look like:. The first value of this smoothed moving average is calculated as the simple moving average SMA :. The second moving average is calculated according to this formula:. Succeeding moving averages are calculated according to the below formula:. After arithmetic conversions the formula can be simplified:.

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The main advantage is absence of false signals at the moments when the price moves in zigzag fashion. It sustains position maintenance during the period of a strong trend and reduces signal lag as compared to ordinary EMA.

The indicator is applied instead of traditional moving averages as well for smoothing a price chart and values of other indicators. It measures a ratio between totals of positive and negative increments for a given period CMO period. In trend, almost all the indicators behave equally. Let us compare the above considered technical indicators on the trading strategy with equal conditions of entering and exiting the market.

To test the indicator, a simple strategy with obvious conditions of entering and exiting the market was chosen. A similar trading strategy is realised in Moving Average Expert Adviser which can be found in MetaTrader 5 terminal navigator. We will check conditions of entering and exiting the market only at a new bar instead of each tick. At first, availability of an open position is checked for this purpose, SelectPosition function is provided in the EA. If there are no such positions we check the entry condition CheckForOpen function , if available - we check the exit one CheckForClose function.

Checkup of entry conditions is realized in CheckForOpen function as follows:. TakeProfit — 80 points, StopLoss — 50 points, volume of trade lot is 0. For each indicator, there were optimised the period variation range - 5 - 50, pace 1 and parameter Growth factor variation range 0. For Nick Rypock Moving Average, the Fact parameter was optimized which determines the period of the indicator calculation.

The indicator values are calculated on the basis of Close price without horizontal and vertical shift. Some indicators have additional parameters:. Testing results on currency pair EUR USD variants with the maximum total net profit are presented in the below table:. For a more vivid comparison of testing results, let us normalize the indices of Total net profit, Profit factor, Sharpe ratio, Recovery factor, Balance and Equity drawdowns maximal by the following formula:.

Outcomes are represented in the table the best results are in yellow, the worst one is in red color :. In the last column of the table, when summing up indicators, the values of Balance and Equity drawdowns maximal are taken with the negative sign the less the drawdown, the best the strategy. Balance equity chart for Triple Exponential Moving Average. Report for Triple Exponential Moving Average. Balance equity chart for Nick Rypock Moving Average.

Report for Nick Rypock Moving Average. Balance equity chart for Double Exponential Moving Average. Report for Double Exponential Moving Average. At the balance equity chart of NRMA, we observe a spike in profit for the last 3 months of trading, at DEMA chart profit growth with a slight drawdown starts from December Normalized results are represented in the table the best results are in yellow, the worst one is in red color :.

Balance equity chart of Variable Index Dynamic Average. Report for Variable Index Dynamic Average. Balance equity chart of Simple Moving Average. Report for Simple Moving Average. Balance equity chart of Linear Weighted Moving Average. Report for Linear Weighted Moving Average.

Balance equity chart of Smoothed Moving Average. Report for Smoothed Moving Average. Normalized results are represented in the table the best results are in yellow, the worst one is in red colour :. Adaptive Moving Average demonstrates the best indicators of Profit factor, Recovery factor and Sharpe ratio, as well it has the least balance and equity drawdowns. Variable Index Dynamic Average has the biggest total net profit, however, other indicators are not the highest.

Balance equity chart of Adaptive Moving Average. Report for Adaptive Moving Average. SMA and VIDYA have the highest profit for the account of a bigger quantity of trades, whereas the number of profitable trades exceeds those loss. Balance equity chart of Exponential Moving Average. Report for Exponential Moving Average. Comparison and optimization of moving averages in trading under equal conditions of entering and exiting the market have been performed.

You agree to website policy and terms of use. Do you like the article? Share it with others — post a link to it! Use new possibilities of MetaTrader 5. MetaTrader 5 — Indicators. Aleksey Zinovik. Contents Introduction Types of moving averages Moving Average technical indicator Exponential moving average EMA -based technical indicators Comparing various types of moving averages Trading strategy specification Developing the Expert Adviser Expert Adviser testing and performance Conclusion Introduction Moving Average MA is one of the most popular technical indicators in the Forex market.

Types of moving averages This section contains a short description and formulae to calculate the moving averages. Moving Average technical indicator Moving Average is one of the most widespread technical indicators. Variants of Moving Average indicator As the figure shows, Simple Moving Average in flat slightly fluctuates and this can yield false trade signals.

Exponential moving average EMA - based technical indicators Exponential moving average EMA underlies a number of other technical indicators. If compared with the rest of moving averages this indicator has a minimal lag when determining trend reversals and change. At price spikes it does not give strong fluctuations and thus, it does not cause false trade signals. The total lag is much less than that for each of those MAs separately.

Fractal Adaptive Moving Average Here the smoothing factor is calculated on the basis of the current fractal dimension of price series. Indicator advantage is that it follows a strong trend and drastically slows down during consolidation periods. Price i is the current price value A i — current exponential smoothing factor Variable Index Dynamic Average This is an EMA with its averaging period changing dynamically and depending on market volatility.

Its main advantage is that there are almost no fluctuations in flat; it strictly follows the trend. All the indicators are made on the basis of Close prices. Comparing various types of moving averages Let us compare the above considered technical indicators on the trading strategy with equal conditions of entering and exiting the market. Trading strategy specification To test the indicator, a simple strategy with obvious conditions of entering and exiting the market was chosen.

Market entry conditions. Preliminary buy signal: indicator line crosses the body of bullish candlestick. Further, if the difference between the current and previous values of the indicator is more than the specified parameter Growth factor indicator grows , we should open a buy trade.

Preliminary sell signal: indicator line crosses the body of bearish candlestick. Further, if the difference between the previous and current values of the indicator is more than the specified parameter Growth factor indicator falls , we should open a sell trade. Market exit conditions : upon reaching TakeProfit or StopLoss levels; if a buy trade is opened and indicator line has crossed the body of bearish candlestick; if a buy trade is opened and indicator line has crossed the body of bullish candlestick.

Figures 3, 4 show examples of trading on such strategy. Example of a buy trade Fig. Example of a sell trade A similar trading strategy is realised in Moving Average Expert Adviser which can be found in MetaTrader 5 terminal navigator. The selected indicator will be drawn on the chart.

One of the best ways to use moving averages is to plot different types so that you can see both long-term movement and short-term movement. You got all of that? Maybe you prefer a trend-following system. Or maybe you want to use them as dynamic support and resistance. Whatever you choose to do, make sure you read up and do some testing to see how it fits into your overall trading plan. Give a man a fish and he will eat for the day.

Teach a man to fish and he will eat for a lifetime. Chinese Proverb. Partner Center Find a Broker.

Forex averages types of different moving a point on the forex chart

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Moving Average Forex Trading Explained

There are four different types of moving averages. 1. Simple Moving Average: · 2. Exponential Moving Average (EMA): · 3. Weighted Moving Average(WMA): · 4. Double Exponential Moving Average (DEMA). The two most common MAs are the simple moving average (SMA), which is the average price over a given number of time periods, and the exponential moving average.