Moving Average or in short MA is a widely used indicator in technical analysis. This smooths and uses the price data to form a trend following indicator which does not predict price direction, but rather define the current direction with a lag which is based on past prices. Despite of this lag, moving averages help smooth price action and filter out the noise. We will check the best moving average indicator settings and usage on the Kite platform of Zerodha.
Moving Average Indicator Settings
Traders can find the Moving Average under the STUDIES section in Zerodha Kite. You can attach it on any chart from there. The default moving average indicator settings on Zerodha platform is 50-period. Check the image below where we attached the moving average indicator on Reliance Industries shares price chart.
You can also select whether to plot the MA on open, high, low, close field or any other technical indicators. Traders will be able to choose the MA type, i.e, simple, exponential, time series, triangular, variable, Vidya, weighted, Welles Wilder, hull, double exponential etc. You can also choose an offset of the MA and also the color can be selected from the parameters.
The two most common uses of moving averages are – (a) SMA (simple moving average), which is the simple average of a security over a defined number of time periods, and other (b) EMA (exponential moving average), which gives greater weight to more recent prices. The MA applications identify the trend direction and determine support and resistance levels. It also forms the basis for other technical indicators such as the MACD (Moving Average Convergence Divergence). In MA buy sell signals can be generated using simple or exponential. In this, the preference depends on each individual.
Most common use of MA is buying and selling signals based on the cross of price over the MA. We can consider pice crossing up from below of the MA as a BUY signal, whereas we can consider price crossing down from above of the MA as a sell signal. We can also use two or more MA crossovers as trading signals.
MA is a trend following indicator as well it is lagging (indicators that will always be a step behind). This is not necessarily a bad thing though. Because we all know, the trend is your friend and it is better we trade only in the direction of the main trend. MA ensures that a trader is in line with the current trend. Once in a trend, the MA will keep the trader in, but also give late signals. In using moving averages, don’t expect to sell at the top and buy at the bottom. We should now use moving averages on their own, but in conjunction with other complementary tools, as with most technical analysis tools.