What Is Moving Average

They are versatile, objective and can be used in many different ways. To some traders, moving averages are used to help confirm trend direction, while to others, they are either used to trail their stops or simply to measure momentum in the market.

Moving average is the arithmetic average of a number of data points over a chosen time period. The most commonly used data points are closing prices. The 20 day moving average will thus be the arithmetic average of the last 20 closing prices for a specific asset. The data is then smoothed daily and is used to identify the beginning or termination of a trend.

moving-averages

Trading Binary Options With Simple Moving Average

If our two SMAs cross upwards, we get a signal for a bullish trend(Buy a call option). If the two SMAs cross downwards, we get a bearish signal(Buy a put option). In this manner, we will buy when the two SMAs cross in bullish direction and we will sell when the two SMAs cross in bearish direction.

trading-sma

Trading Simple Moving Average Time Frame

This strategy works best with the higher time frames such as the 30 minute or 1 hour charts. Additionally, waiting for a confirmed crossover will mean waiting for the previous bar to close before purchasing options in the direction of the crossover.

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