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Written by Administrator
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Tuesday, 12 June 2007 |
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Moving averages are one of the most popular and easy to use tools
available to the technical analyst. They smooth a data series and make
it easier to spot trends, something that is especially helpful in
volatile markets. They also form the building blocks for many other
technical indicators and overlays.
Moving averages smooth out
a data series and make it easier to identify the direction of the
trend. Because past price data is used to form moving averages, they
are considered lagging, or trend following, indicators. Moving averages
will not predict a change in trend, but rather follow behind the
current trend. Therefore, they are best suited for trend identification
and trend following purposes, not for prediction.
There are many uses for moving averages, but two basic uses stand out:
- Trend identification/confirmation
- Support and Resistance level identification/confirmatio
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