Moving Averages, Simple and Exponential

This Indicator is often used in various spreadbet strategies.

The moving average is a simple average price of the last n prices.  This is a lagging indicator, that is used to smooth data and filter out noise.  The moving average is also a base indicator for many other indicators you will see in the spread betting strategies you will find in http://www.spreadbettingexamples.com/.

There are two types of averages, the simple moving average and the exponential moving average.

As you can see below, the difference between exponential moving average and simple moving average:

The Simple (SMA) is the green line, it lags a little. Instead the EMA follows the prices more closely (blue line).

The Simple Moving Average:

The simple moving average as described above is the simple average of the prices.

Calculations:

Prices: 1.4300 1.42931.42591.42771.42681.4238

1.4251

5 Day Average: (1.4300  +

1.4293 +1.4259 +1.4277 +

1.4268 )/5 = 1.42794

1.42794 is the average price of the last 5 days. if the current price is above 1.42794,  this means the current price is stronger than the price of the last five days.

Many spreadbetters use the Moving average as a trend following tool. Those that trade in the direction of the trend, trade with the strength. Therefore if the FTSE is trading below it’s 200 Day moving average this indicates weakness. Trend following spreadtraders will short the FTSE Rolling Bet.

Next Page: Exponential Moving average.