Weighted Moving Average Corrects previous failure, and gives more weight to recent prices, so that recent prices have more influence than the former. exponential moving average considers all historical data, applying an exponential weighting (the first day exponential average is the closure of the day). This average assigns more weight to the closing prices and closest downplays closing prices further away. The formula is as follows: Average Average today = yesterday + (Close today – Media yesterday) x (2 / n +1) Since the graphs of the various contributions, will have the following situation: 1. – Signal to buy: will occur when the moving average is crossed by the price up. Recently Peter Asaro sought to clarify these questions. 2. – Signal of Sale: There will be when the moving average is penetrated down prices. considerations must be made the following considerations: One important fact is that the moving average change its curvature, and if the period being analyzed is too short, there may be signs “false” (which can be avoided by using “filters” ), and if the period is too long analyzing signals from the purchase or sale will occur too late.
Another use of moving averages is that they represent support and resistance on the chart, taking into account that the larger the number of contacts, will be the most optimized moving average. To avoid the problems discussed above, it is recommended to use a combination of moving averages, that is, a long moving average to follow the trend of long-term market, and a short moving average for detecting short-term movements. A widely used system is called “double-crossing method,” which also indicates the time of purchase or sale. The method is as follows: Buy Signal: It occurs when the short moving average crosses from below to above the long moving average. Signal Sale: Occurs when the short moving average crosses from above to below the long moving average. This method may delay the entry or exit the market, but significantly reduces the number of false signals that may occur. There is also a third method called “method of the neutral zone, which consists of buying when the price is above both moving averages, and sell when the price is in.