Moving average, the first step to cultivate a trading master
◆ What is the moving average?
Moving Average, referred to as MA, was proposed by the famous American investment expert Joseph E.Granville in the mid-20th century. Thus, it is also called the Granville moving average.
MA5, MA10, and MA20 are all popular-used MA.
Standard definition: MA is a statistical analysis indicator that refers to an average price for a particular trading instrument over a specified period. It is used by investors and traders to track and identify trends by smoothing normal day-to-day price fluctuation.
MA10 averages out the closing prices for the first 10 candlesticks as the first data point. The next data point would drop the earliest price, add the price on stick 11 and take the average, and so on.
As shown in the above 30-minute candlestick chart, the MA10 value highlighted is 10929.377, which is the average of the closing price of the current and the previous 9 Candlestick charts, namely, 10929.97, 10942.15, 10971.05, 10941.65, 10915.12, 10909.03, 10946.80, 10920.21, 10908.77, and 10909.02.
The definitions of MA5 and MA20 are the same.
◆ Where is the moving average?
In BEX500, you can spot MA lines by default once you turned on trading interface.
BEX500 offers candlestick charts of various time frames including 1-minute, 30-minute, 4-hour, daily, weekly, and monthly, and so on. Under different time frame, moving averages represent prices averaged over different period of time. For example, if we choose the 4-hour candle, MA5 is the average closing price of 5 Candlesticks, which, in total, is no more than 20 hours. Therefore, never call MA5 the 5-day moving average again.
◆ How does the moving average help your trading?
The moving average theory is one of the most common technical indicators for the applications at present. It is a useful tool to help traders identify existing trends, judge trends to emerge, and find trends that are over-extended and going to invert.
Take a look at the above figure. We chose to display the three moving averages of MA10, MA20 and MA30 under the 30-minute time frame. It can be seen that:
the short-term MA tends to follow closely with the market like a toddler to their mother.
While the long-term one is doing the opposite, leave himself behind like an adolescent away from his mom.
The moving average with a short cycle is sensitive to market changes like a compass. But it can be misleading in market volatility.
the long-term MA, instead, affected by no instant market changes, indicate a market price tendency in the long run. However, long-term MA alone, is not sensitive enough to guide traders.
Therefore, to sum it up:
The short cycle is suitable for observing price changes, but subject to many market interferences.
The long cycle is fit for observing long-term price trends, but the sluggish response could make the best opportunity slip away.
◆ What is the Golden Cross & Death Cross?
A few moving averages have provided us with endless trading analysis tools.
let’s start with the most familiar "golden cross" and "death cross".
When we select two moving averages, such as MA20 and MA40, you may find that the two moving averages, like Romeo and Juliet, entangle with each other.
Looking closely at the above figure, we will find:
When MA20 crosses MA40 from downward, as shown by the upward arrow, the price will soar;
When the MA20 passes through the MA40 from upward, as shown by the downward arrow, the price will slightly drop.
If, every time we buy in when the price skyrockets, and then close the position when it falls, you can make a big fortune with 100x leverage offered by BEX500.
Therefore, when the short-term moving average MA20 crosses over a long-term moving average MA40 to the upside, golden cross happens, which is interpreted as signaling a definitive upward turn;
On the contrary, when the short-term moving average MA20 crosses down a long-term moving average MA40 to the downside, it is called the death cross, which is a good.
What is the principles behind golden and death cross?
From the aforementioned algorithm of moving averages, the short-term moving average reflects the trend of short-term price changes, sensitive but easy to be interfered with the market; the long-term one represents the trend of long-term price changes, which is stable but tend to drop behind the market
However, if the long-term trend answers to the short-term one, which means they reached a consensus of price surge.in this case, it is more likely to see a real uptrend of price.
Hence, the emergence of the golden cross and the death cross, in a trend-oriented market, provides a directional guidance with a high probability. That is why people offer it a symbolic name.