There are many, many technical indicators available today supported by complex mathematics and theories. Today, I want to go right back to basics, and talk about the simplest indicator in technical analysis. It’s one that forms the backbone of many, many other trading strategies and technical indicators.
That’s right, it’s moving averages.
Wikipedia defines a moving average as:
“A moving average (rolling average or running average) is a calculation to analyze data points by creating series of averages of different subsets of the full data set”
It’s the mean of a subset of values in a series. In trading, it’s usually a subset of closing prices.
To fully define a moving average, we need to know how big that subset is. You’ll often hear people talk about the 50-day moving average, and the 200-day moving average. These are 2 commonly watched moving averages.
