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Magic of Moving Averages

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Conclusion

Moving average is a useful indicator. The simplicity of this indicator makes it popular among most of the traders. It’s the most important tool to identify broader trends in the market. They suggest good entry and exit points while trading.

But there are no such indicators that are flawless. They all come with their own pros and cons. It's an important skill for a trader to use the moving average in conjunction with other technical indicators. One type of moving average isn’t necessarily better than others as they simply have different calculation methods for average prices. As such, our trading strategy will ultimately determine what type of Moving Average works the best.

In a highly volatile market condition, extremely  short-term moving averages tend to generate false trade signals. Moreover, moving averages do not work well in choppy market conditions. They are suited to work only in trending markets. It should not be used in isolation, but if we combine other technical tools to filter our trades, high probability trade setups can come up. 

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Units 7/7