Moving Averages Flashcards
A moving average is simply?
a way to smooth out price fluctuations to help you distinguish between typical market “noise” and actual trend reversals.
By “moving average”, we mean that you are?
taking the average closing price of a currency pair for the last ‘X’ number of periods.
Moving averages smooth out?
price action.
Generally, the smoother the moving average, the?
slower it is to react to the price movement.
The choppier the moving average, the?
quicker it is to react to the price movement.
To make a moving average smoother, you should get the?
average closing prices over a longer time period.
What are the two types of moving averages?
Simple and Exponential.
A simple moving average is calculated by?
adding up the last “X” period’s closing prices and then dividing that number by X.
With the use of SMAs, we can tell whether a pair is?
trending up, trending down, or just ranging.
There is one problem with the simple moving average: they are?
they are susceptible to spikes.
Exponential moving averages (EMA) give?
more weight to the most recent periods.
When you want a moving average that will respond to the price action rather quickly, then a?
short period EMA is the best way to go.
The downside to using the exponential moving average is that?
you might get faked out during consolidation periods.
When you want a moving average that is smoother and slower to respond to price action, then?
a longer period SMA is the best way to go.
One sweet way to use moving averages is to help you?
determine the trend.
When price action tends to stay above the moving average, it signals that?
price is in a general UPTREND.
If price action tends to stay below the moving average, then it indicates that?
it is in a DOWNTREND.
If the moving averages cross over one another, it could signal that?
the trend is about to change soon, thereby giving you the chance to get a better entry.
Another way to use moving averages is to
dynamic support and resistance levels.
The area between moving averages could be considered as?
a zone of support or resistance.
A moving average ribbon is a?
series of moving averages of different lengths plotted on a chart.
The basic idea behind the concept of “moving average ribbons” is?
instead of using one or two moving averages on a chart, you are using a bunch of t moving averages, usually between 6 to 16 moving averages (or more).
The responsiveness of the moving average ribbon can be adjusted by:
Changing the number of time periods used in the moving average. Changing the type of moving average from a simple moving average (SMA) to an exponential moving average (EMA).
The shorter the number of periods used when selecting which MAs to add on your chart, the more?
sensitive the moving average ribbon is to slight price changes.
Using moving averages with larger numbers of periods (like 200) are?
less sensitive and smoother.
When the moving averages start widening out and separating, also known as ribbon “expansion”, this signals that?
that recent price direction has reached an extreme and could be the end of a trend.
When the moving averages start to converge and get closer to each other, also known as ribbon “contraction”?
a trend change has possibly started.
When the moving average ribbons are parallel and evenly spaced, this means that?
the current trend is strong.
The positioning of short-term moving averages relative to long-term moving average shows the?
DIRECTION of the trend (down, neutral, up).
The spacing between the moving averages shows the?
STRENGTH of the trend (weak, neutral, strong).
