3 Moving Avarage

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Trading strategies utilizing three moving averages can be a powerful tool when attempting to capitalize on trends in the market. Moving averages involve plotting of the average price over a certain period of time, and can provide insight into the trend of an asset’s price movements. The three most common types of moving averages include simple, exponential and weighted.

A simple moving average (SMA) is calculated by adding up all prices over a certain number of periods before dividing by that same number. The result is the average value of an asset’s price for that particular span of time. While this type of moving average does not take into account more recent data points more heavily, it does provide a smoother look at the overall trend as opposed to other common methods such as line charts.

The exponential moving average (EMA) puts greater emphasis on recent prices, using an equation to attach greater weighting to new information versus older information contained in the SMA formula. As a result, this method offers traders better insight into more current trends because newer prices are given more importance than older ones.

Weighted moving averages (WMA) are similar to exponential moving averages in that they place greater emphasis on recent prices than old ones, but they are calculated differently. Instead of weighting each price based on its distance from the previous point like EMA’s do, WMA’s assign a predetermined weighting factor to each price point which may vary depending on how far back or close it is from the current period being analyzed.

Using these three different types of moving averages together can help traders identify crossovers which serve as buy and sell signals for various trading strategies - much like other technical analysis indicators such as Bollinger Bands or MACD. When two different period lengths intersect with one another, it could be an indication that there has been some kind of shift in momentum towards either an upward or downward trajectory - allowing skilled traders to take advantage accordingly. Of course depending on what type of strategy you’re employing, these signals may need to be filtered through other criteria before taking action.

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