9/7/2023 0 Comments Ema vs mma colorOne of the most effective ways to use the SMMA in trading reversals is when used with another moving average line measured over a different period. A reversal is when the current trend comes to an end, and a new one begins in the opposite direction.įor example, if you spot a bullish reversal about to start in a down-trending market, you take a long position and wait for the reversal to occur so you can ride the resulting price rise to accumulate profits. Identifying potential reversals in price action is a massive opportunity to enter or exit a position. Trend following with the smoothed moving average indicator works across every traded asset class. Once the trend is about to end, the price and SMMA lines will start to draw closer to each other, signaling that a trend change is imminent. The smoothed moving average line serves as a guide for identifying when to buy or sell based on the current market trend.įor instance, the SMMA line will usually remain slightly above it when the asset price trends downward. It’s only common sense to buy an asset when you’re confident that the price will go up, giving you a nice profit. The beauty of this trading strategy lies in its simplicity. They also short the asset when the price is already falling and confirmed to be trending downwards. The trader buys an asset whose price is already on the rise and confirmed to be trending upwards in trend following. Here are some common SMMA trading strategies: Trend Following This crucial insight into market behavior helps traders identify entry/exit points. As a lagging indicator, it’s excellent for confirming prevailing trends, whether upward or downward, in the market. The SMMA indicator plays a vital role in many trading strategies. Additionally, since it gives equal weight to data from past periods, the SMMA can represent economic conditions better than its non smoothed counterparts. SMMA* – the previous smoothed moving average barĬLOSE – The closing price at the time of calculationīy smoothing out the data over a given period, traders and analysts have a more comprehensive overview of the trend minus the deviations attributed to short-term volatility. SMMA# – the smoothed sum of the previous bar The formula for calculating the smoothed moving average is: Plus, on the off chance that the SMMA indicator is not readily available on your trading platform, this knowledge will come in handy. It doesn’t hurt to know how to calculate it. Nevertheless, let’s walk through the formula anyway. So you don’t have to worry about the actual formula or calculation you can just set it up on your charts with one click. The good news is that the SMMA indicator is available by default on most trading platforms. Microsoft Corp stock chart | Source: Calculating the Smoothed Moving Averageīecause it is a combination of both the EMA and the SMA, the formula for calculating the smoothed moving average might come off a bit complex. All trendlines were plotted within the same period, and yet they show different results on the chart. The chart below shows the Microsoft (MSFT) stock chart with the SMA (blue), EMA (red), and SMMA (green). This added accuracy helps traders confirm market trends quicker. The smoothed moving average provides a broader view of things by ‘smoothing out’ short-term market fluctuations. Unlike the EMA, which places more emphasis on recent data. The SMA looks at the price of a traded asset and divides it by the given period to be studied, but it all looks at all periods equally. Think of the SMMA as a hybrid of its better-known siblings - the simple moving average (SMA) and the exponential moving average (EMA). That’s why we call it a “moving” average. As more data becomes available, they recalculate the averages to accommodate newer periods. Traders use it to gauge market trends according to a series of averages taken over a given period. The smoothed moving average is simply a moving average that assigns weight to price data points over a long period. It’s a handy indicator tool to know because of its ability to confirm prevailing market trends that help generate buy/sell signals. During your trading journey, you will likely come across Smoothed Moving Average (SMMA).
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