Thread by @sunilkumarc3

#weekendstudy
A 🧵on Moving Averages
@KommawarSwapnil @_Harsh_Mehta_ @jbotlagunta @kuttrapali26 @nakulvibhor @rachana_ranade @caniravkaria @TheVivekSinghal @chartbent @AlgoBoffin @TulsiyanVarun @MDtradingdesk

#stockmarkets #technical
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https://twitter.com/sunilkumarc3/status/1485144964225183752

Intro
The moving average is one of the most versatile & widely used of all technical indicators.
Because it can be easy to understand, quantified & tested.
Chart analysis is largely subjective.
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Because two chartists may disagree as to whether a given price pattern is a triangle or wedge
But moving average trend signals are precise & not open to debate
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WHAT IS MOVING AVERAGE:
As the second word implies,
It is an average of certain body of data
For example, if a 20 day average of closing price is desired, the prices for the last 20 days are added up & the total is divided by 20
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The word moving is used because only the lattest 20 days prices are used
Each day the new close is added to the total & the close 21 days back is subtracted.
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The moving average: a smoothing indicator with a time lag:
The moving average is a trend following device
Its purpose is to identify that a new trend has begun or that an old trend has ended or reversed.
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The moving average is a follower, not a leader.
It never anticipates, it only reacts
Shorter term average (10/20) are more sensitive to the price action(see chart violet line 10 ema)
Whereas longer(200) range average are less sensitive (see chart red line 200 ema)
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The simple moving average:
The simple moving average or arithmetic mean, is used by most technical analysis.
The main criticism of simple moving average are it gives equal weight to each days price
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The exponentially moving average:
The exponentially moving average assigns a greater weight to the more recent data

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The use of one exponential moving average:10/20/50
Some trader just use one moving average to generate trend signals
When the closing price moves above the moving average, a buy signal is generated.
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A sell signal is given when prices move below the moving averages.
For added confirmation, some technicians also like to see the moving average line itself turn in the direction of the price crossing
Shorter the EMA, higher the buying/sell signals
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10 EMA gives more and early signal and also gives many false signals
20 EMA gives less as well as false signal in compare to 10 EMA
Shorter EMA gives early signal & larger EMA gives late signal( see chart 50 & 200 ema)
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Moving average applied to long term chart:
 chartist should not overlook longer range trend analysis
 10 & 40 week moving averages can be used to help track the primary trend on weekly charts
 40 week moving average should provide support during bull market correction