By the end of this chapter, you should
• Be aware of how moving averages are used to identify trends
• Be able to calculate a simple moving average
• Be able to calculate an exponential moving average
• Be familiar with the concept of directional movement
• Be familiar with the construction of envelopes, bands, and price channels
One of the most successful methods of identifying and profiting from trends is the use of moving averages. A moving average is a constant period average, usually of prices, that is calculated for each successive chart period interval. The result, when plotted on a price chart, shows a smooth line representing the successive, average prices. Moving averages dampen the effects ...