Simple Moving Average
Simple Moving Average calculation based on candles
So, our website acquired a new mighty function - flash-control to draw a variety of graphs. Control is absolutely free for use, for details see this.
The calculator below starts a series of calculators dedicated to technical analysis and technical indicators and using by far the most advanced functions of our website
Briefly, I'll explain what this all about - it's about trading on the stock exchanges and the foreign exchange market - so-called forex.
There is an area called technical analysis, where it's considered that to study the price movement some indicators mathematically calculated on the basis of the price change history, and these may make it clear what you need to do at a particular time - buy, sell or do nothing. Such indicators are called technical indicators.
That was a short version. I won't give you any trading advice or any tips about using these indicators - there is a risk of losing MONEY after all. But I will review different technical indicators because, firstly, I've dealt with them earlier, and secondly, this is a good occasion to demonstrate complex graphics.
Let's continue the necessary educational program for those who somehow lacking this knowledge.
Technical indicators usually don't use instantaneous price changes but operate on so-called candles or bars. It is a kind of average price movement for a fixed period of time, e.g. five minutes. This time period is called compression.
Each candle is characterized by four parameters.
- Open, i.e. price value at the beginning of a given interval.
- High, i.e. maximum price value achieved in a given interval.
- Low, i.e. minimum price value achieved in a given interval.
- Close, i.e. price value at the end of a given interval.
Candles are usually composed of the body (black or white), and an upper and a lower shadow (wick): the area between the open and the close is called the real body, price excursions above and below the real body are called shadows. Candles also have color or direction - if the opening price is below the closing price, then we say that the candle goes up, and is usually depicted green. If the opening price is higher than the closing price, we say that the candle goes down, and usually depicted red. Also, it is obvious that the candle closing price is the opening price of the next candle.
The educational program is over, let's skip to the technical indicator. Today we are studying Simple Moving Average or SMA. This indicator is very easy and is often used as a base for calculating other indicators. And it's used to indicate a trend change.
Indicator calculation is pretty simple - the number of candles is taken and by any parameter (e.g., Close) the average of period n is calculated. And it is moving because the closing price value for each indicator calculation is taken from previous n candles i.e. it seems to be moving on the candles.
Calculation formula when using closing price
As we can see, everything is easy. The calculator below uses preloaded candles, showing USD/JPY rate change with 15-minute compression for some period of time, to calculate the simple moving average.
By the way, this is a small fly in the ointment of free flash-control. It displays data within the accuracy of two decimal places while fluctuations in most currency pairs are measured to the nearest thousandth.
Because of this limitation, you can only use a small set of currency pairs as the data for the indicator calculating, the rate of which varies in hundredths, as, for example, the aforementioned pair of USD/JPY.
Note that with an increase in the number of periods n, the simple moving average graph becomes smoother.