The Moving Average is probably the most popular indicator used in Technical Analysis. In this article you are going to see what is a Moving Average Indicator and how to use it in Metatrader.
Download The Moving Average Indicator With Alert For Metatrader
What Is A Moving Average Indicator
The Moving Average Indicator is a visual representation of the mean price of an instrument over a specified period of time.
You can often refer and read the Moving Average in the short form MA.
All Trading Platforms and Charting Software include the Moving Average Indicator. This is usually represented as a line connecting the individual values of the indicator.
You will shortly see the parameters of the Moving Average but just to show an example. If you are in a daily chart and want the value of a Simple Moving Average (SMA) of period 10, then the value is the mean of the price in the 10 days before.
Connecting the individual values of the Moving Average shows you the line commonly known as Moving Average Indicator, or MA.
What Are The Types Of Moving Average
While the first moving average was a simple average of the values, with time, analysts created more versions.
The four most popular moving averages are:
- Simple Moving Average, SMA
- Exponential Moving Average, EMA
- Smoothed Moving Average, SMMA
- Linear Weighted Moving Average, LWMA
You will shortly see the difference in their calculation.
Something to notice is that the Exponential Moving Average and the Linear Weighted Moving Average give more importance to recent values. Because of this, these types of MA react more quickly to price changes.
What Are The Parameters Of A Moving Average Indicator
When using the Moving Average Indicator in Metatrader you need to select a few parameters.
The parameters required to add a MA to Metatrader are:
- Period, is the period of time to consider, for example a period of 10 in a daily chart means 10 days
- Shift, is the delay in time to apply to the indicator, for example a period of 5 in an hourly chart means shifting the MA to the right of 5 hours
- MA Method, is the calculation method to apply to the MA, basically which type of MA you want to see
- Apply To, this is the price you want to apply the formula to, for example a common selection is the Close Price
What Is The Formula Of The Moving Average Indicator
As mentioned earlier in the article there are different types of MA.
Every type of Moving Average has its own calculation formula.
You can find some more details about the formula in this article, I took them from there.
Simple Moving Average (SMA)
Simple, in other words, arithmetical moving average is calculated by summing up the prices of instrument closure over a certain number of single periods (for instance, 12 hours). This value is then divided by the number of such periods.
SMA = SUM(CLOSE, N) / N
N – is the number of calculation periods.
Exponential Moving Average (EMA)
Exponentially smoothed moving average is calculated by adding the moving average of a certain share of the current closing price to the previous value. With exponentially smoothed moving averages, the latest prices are of more value. P-percent exponential moving average will look like:
EMA = (CLOSE(i) * P) + (EMA(i – 1) * (100 – P))
CLOSE(i) – the price of the current period closure;
EMA(i-1) – Exponentially Moving Average of the previous period closure;
P – the percentage of using the price value.
Smoothed Moving Average (SMMA)
The first value of this smoothed moving average is calculated as the simple moving average (SMA):
SUM1 = SUM(CLOSE, N)
SMMA1 = SUM1/N
The second and succeeding moving averages are calculated according to this formula:
PREVSUM = SMMA(i – 1) * N
SMMA(i) = (PREVSUM – SMMA(i – 1) + CLOSE(i)) / N
SUM1 – is the total sum of closing prices for N periods;
PREVSUM – smoothed sum of previous bar;
SMMA1 – is the smoothed moving average of the first bar;
SMMA(i) – is the smoothed moving average of the current bar (except for the first one);
CLOSE(i) – is the current closing price;
N – is the smoothing period.
The formula can be simplified as a result of arithmetic manipulations:
SMMA (i) = (SMMA(i – 1) * (N – 1) + CLOSE (i)) / N
Linear Weighted Moving Average (LWMA)
In the case of weighted moving average, the latest data is of more value than more early data. Weighted moving average is calculated by multiplying each one of the closing prices within the considered series, by a certain weight coefficient.
LWMA = SUM(Close(i)*i, N) / SUM(i, N)
SUM(i, N) – is the total sum of weight coefficients.
How To Add A Moving Average To Metatrader
Both Metatrader 4 (MT4) and Metatrader 5 (MT5) include the Moving Average Indicator.
Add a MA to a chart is very simple.
The simplest way to add the indicator is to drag and drop the indicator from the Navigator Panel to the Chart. Once you drop the indicator you need to select the parameters.
Another option is to click the Indicator button in the Chart toolbar and then select the Moving Average from the list.
How To Read A Moving Average
The first thing to understand when talking about reading a Moving Average is that this indicator FOLLOWS the price, it doesn’t PREDICT the price.
There is no indicator that can predict the price with 100% accuracy.
Even if the MA cannot predict the price it can in some way help in reading the market.
A Moving Average Indicator can help:
- Spotting a reversal
- Showing an acceleration in the momentum
- Showing a deceleration in the momentum
- Spotting levels of support and resistance
You can see here some examples.
Moving Average To Spot A Reversal
Since the moving average follows the price, when you see the price returning to the MA and crossing it, this can be a signal of trend reversal.
Moving Average To Spot A Strong Momentum
When the price moves away from the moving average this means that it is picking up momentum, confirming a reversal or a trend continuation.
Moving Average To Spot A Weak Momentum
If the price gets closer to the MA line this indicates that it is losing momentum and the price move is weakening.
Moving Average To Spot Support And Resistance
In some cases the moving average can act as a level of support or resistance.
In these cases the price often touches the MA and then bounces against it.
The 200 Simple Moving Average
The 200 SMA is a very popular setting between traders and analysts. It is common opinion that this line acts as a strong Support and strong Resistance, especially in high time frames like daily and weekly charts.
How To Download A Moving Average Alert Indicator For Metatrader
While it is great to have the Moving Average Indicator included in the Metatrader platform, it is missing something.
In many cases and strategies it is useful to receive a notification when the price touches or crosses the MA. The Metatrader version of the indicator doesn’t do that.
If you want to be notified when the price crosses the Moving Average you can download my indicators for FREE.
In this article you saw what is the Moving Average Indicator, the most popular types of MA included in Metatrader and how to calculate them.
You also learned how to add the indicator to a chart and about some interpretation of the indicator.
If you liked this article please feel free to share and leave a comment, if you didn’t like it please let me know what I can improve.