It seems that most modern day traders use “moving averages” by necessity or when available. But what is a “moving average”? It is not to be confused with a standard deviation, a standard deviation is a number that allows you to compare two values. Moving averages are the standard in the area of the chart. So, an average moving average of 100 shows the values from 100 to 100. If you can define a line which measures the market’s trend or volatility you should use a moving average. It will make it easier to analyze the chart.
How can I use a moving average to plot a price vs. time line?
A moving average is a moving average in time. It has a line running counter-clockwise from the end of the descending bar or moving average, and then moves upwards. Therefore, it can show the actual price movement from zero (0) to the beginning of the rising bar or moving average. But remember that while it does show a time-line, it’s more of a trend. So if you want to see a short-term price movement from zero to the beginning of the ascending bar, it would also be helpful to use the moving average instead of the moving vertical bar.
Why use a moving average versus a price trend line?
So how much of a difference is there between them? Well, let’s look at a hypothetical example. Say the $100 price is below the $80 price and you’re looking at it with a moving average. If you go ahead and look at the trend line, it would be the rising trend line which would continue for about $81 before reaching the $80 mark. That would be a moving average but the price would just stay here and would be below the moving average. It would represent a straight line but the price line has a tendency to move sideways and therefore may have a greater influence than a moving average.
It is important that you know that if the price moves too far and too fast the line will probably have a significant bias and will move in a non-linear way (i.e. the trend line will move more than the moving average). Also note, this is what is known as an exogenous shock. Exogenous shocks happen because different factors such as a market crash, bad weather or even bad stock market news may create an exogenous shock. That makes them not an exogenous shock but something more like an exogenous shock.
Why wouldn’t I take advantage of a moving average to
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