MetaTrader Indicators

The MA or Moving Average is a form of technical indicator which depicts the price value over a given period of time. The average of the price for certain period of time is better known as the Moving Average (MA).

Moving averages are of four types:

1. Simple or Arithmetic Moving Average.
2. Exponential Moving Average.
3. Smoothed Moving Average.
4. Linear Weighted.

Moving Average can be calculated for a given set of sequential data like that of starting prices and ending prices, peak prices and bottom prices, volume of trading and many such other indicators. This happens quite often with the use of moving averages twice.

The single point of divergence between the moving averages is that when the weight coefficients given to the current data differ from each other. When we are discussing SMA, all the prices of that given period of time have equal value. Exponential MA as well as Linear Weighted MA gives added importance to the current prices.

There is a very common method of interpretation of the price MA. It is done by evaluating the difference between the dynamics and the action of price. The buying signal appears with the rise in price, much higher than its moving average and with the fall in price, much lower than its moving average it is the time to sell.

The method of trading based on moving average does not intend to allow way inside the market when it is at its lowest, and way out when the market is at its peak. It permits the trend which says it is best to buy when the prices are the lowest and sell off when the prices are at its highest.

These can be used as an application for indicators. This is the point of similarity between the indicator and MA, as their interpretation is the same. It means that if there is a rise in the indicator higher than the moving average, it is assumed that the rising movement of the indicator will continue and if the indicator slips down, much lower than the moving average it is assumed that it will go even lower.

Calculation:

Simple or Arithmetic Moving Average (SMA)

Summation of the instrument closure prices over N number of particular periods is the Simple moving average (SMA). The result is further divided by N number of similar period.

sma=total (closure, N)/N

Where, N stand for the total periods calculated.

EMA or Exponential Moving Average

The calculation of Exponentially moving average is done by summing up the MA of a particular portion of the latest concluding price to that of the earlier value. With EMA the current prices have more value.

EMA= {closure (i)*p} + {EMA (i-1)*(100-p)}

Where:

Closure (i) stands for the current closing period

EMA (i-1) stands for EMA of earlier closing period

p stands for the percentage of price value usage

SMMA or Smoothed Moving Average

Calculating the initial value of SMMA is the same as SMA.

S1=S (closure, n)

SMMA=S1/n

The next step of calculation is done using the following method:

SMMA (i) = (S1-SMMA+closure (i))/n

Where:

S1 stands for the sum total of price closure for certain (n) periods;

SMMA stands for first smoothed moving average;

SMMA (i) stands for current smoothed moving average (leaving aside the first one);

closure (i) stands for the present price closure;

n stands for period of smoothing.

LMWA or Linear Weighted Moving Average

In this method, more importance is given to the current data than the earlier data. The calculation is done by multiplying every price closure within the stated sequence, by a particular weight coefficient.

LWMA=S (Close (i)*i,n)/SUM(i,n)

Where, S (i,n) stands for the sum total of coefficients of weight..