What is Moving Average?

   One of the most commonly used analytical methods in the Forex market is moving averages. For estimating future prices, it is calculated by taking the average of past prices.The reason for moving average is; every new price move is included in the average.

   When moving averages are used in analysis, the lines shown on the graph can be interpreted as support and resistance level. If the price is above the average, we can say that it has create a support level of the moving avarage, and if there is a pricing below the average, it has create a resistance level of that moving avarage.

   Moving averages are an important tool for determining trends. The prices above the moving avarage may indicate that the outgoing signal is giving a signal to buy, while the lower part of the average indicates that it is giving the signal to sell.

   When two different averages are used; if the short-term average rises above the long-term average it should be interpreted as a buying signal. If it is dicrease, it means a selling signal.

For an example interpretation, you can examine the following graph.

Moving averages are divided into five;

1. Simple moving average 
2. Weighted moving average 
3. Exponential moving average 
4. Triangular moving average 
5. Variable moving average 

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1- Simple moving average; 

   Calculated by taking the average of all closing prices in the preferred time slot. Since each day in the past is calculated with the assumption that it has the same importance, the hit rate is lower than the other averages.

2-Weighted moving average ;

   It is an analysis method found by Welles Wilder. While the simple moving average looks at the same importance every day, the weighted moving average increases the degree of importance by giving a higher coefficient to the prices that occurred in the last days. The results are more accurate at this point.

3-Exponential moving average;

   It is a more commonly used average than the other moving average. Although the calculation is somewhat complicated, the success rate of the signals is higher.

   Today's generated price is added to yesterday's exponential moving average with a determined percentage and the present exponential moving average is found. Thus, more emphasis is placed on closing prices in recent times.

   While the exponential moving average percentage is calculated; 2 / (1 + the time period specified for moving average) formula is used.

4-Triangular moving average;

   In this avarage, the number of days in the middle of the number of days in the period we look at is given more weight.

5-Variable moving average;

  It is an exponential moving average. The difference from the other exponential moving average is that when the prices are compressed in the horizontal market, the variable moving average gives stronger signals.

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