Moving Averages will become more important than ever as we head into a recession. However, a lot of traders commit critical errors in using them which results to losing more money.
Moving averages have the one goal. They are used to identify trends in a particular period and they iron out the price fluctuations day to day. The equation they use is adding the closing price and dividing it by the period where it is calculated.
The problem arises when traders tend to misuse the moving averages. One example is that, most traders believe that Moving Averages are leading indicators. They are not. They are lagging indicators and because of that, they work best in LONGER time frames where data is plentiful and accuracy is higher.
Many traders make the mistake and believe that shorter time periods can be traded with moving averages. Although a trader may find some success, he or she risk closing many more trades with a loss. The volatility in short term periods is random, thus, there is no trend. Day trading traders lose when they use moving averages in intraday periods because simply not enough data to calculate.
In summary, using moving averages is most advantageous in weekly and monthly charts. Learn how I trade by watching my strategy.
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