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Variable Moving Average

The Variable Moving Average study allows you to get very creative with the moving averages. Three moving averages are applied (normal, exponential, and smoothed).

Properties

Period1. For the normal Moving Average, the number of bars in a chart. If the chart displays daily data, then period denotes days; in weekly charts, the period will stand for weeks, and so on. The application uses a default of 10.

Period2. For the Exponential Moving Average, the number of bars in a chart. If the chart displays daily data, then period denotes days; in weekly charts, the period will stand for weeks, and so on. The application uses a default of 10.

Period3. For the Smoothed Moving Average, the number of bars in a chart. If the chart displays daily data, then period denotes days; in weekly charts, the period will stand for weeks, and so on. The application uses a default of 10.

Aspect: The Symbol field on which the study will be calculated. Field is set to “Default”, which, when viewing a chart for a specific symbol, is the same as “Close”.

Interpretation

Moving Averages are one of the most commonly used technical tools. They follow the trend, smooth the normal fluctuations of the data, and clearly signal long and short positions to the investor.

A Moving Average may be displayed as a normal crossover trading system when you select up to three different averages. Most investors and charting services use three moving averages. Their lengths typically consist of short, intermediate, and long-term. A commonly used system is 4, 9, and 18 intervals. An interval may be ticks, minutes, days, weeks, or even months; it depends upon the chart type.

Normal moving average crossover buy/sell signals are as follows:

  • A buy signal is flashed when the short and intermediate term averages cross from below to above the longer term average.
  • Conversely, a sell signal is issued when the short and intermediate term averages cross from above to below the longer term average.

Another approach is to use closing prices with the moving average(s). When the closing price is above the moving average(s), you maintain a long position. If the closing price falls below the moving average, you liquidate any long position and establish a short position.

Remember, any moving average system works best in trending markets.

Content Source: FutureSource

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