Trading Indicators Explained With TradingView 1: Simple Moving Average (SMA)

Trading Indicators Explained With TradingView 1: Simple Moving Average (SMA)

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[Music] hey this is David for big bits and in this video we’re going to discuss the simple moving average now this is a trading indicator that’s really a core idea that you need to understand if you want to understand more advanced trading indicators this is about as simple as you can get for coming up with an indicator that you can use on a chart now as you can tell we’re looking at a trading chart we’re looking at prices and how they’ve changed over time and the Green Line is a moving average that includes 50 periods worth of information averaged into one price now what I mean by that is starting at the newest information we are going to go back 50 times and take the average of the price at the end of each of these periods we’re gonna call these the candles from now on because that’s what they are so we have 50 periods back and we’re going to be calculating its average now it’s pretty simple if you know how to calculate an average you take all of the values and the past 50 or so candles divide them by 50 once you’ve added them all up so let me just say that again I might have said that a little odd you want to add up the values for the last 50 candles then you divide that by the number 50 to get your average that’s just a standard average that’s how you’ve learned to calculate in math all of your life now to illustrate this a bit more I’m going to use an indicator that I’ve come up with on tradingview that you can find in its public library completely open source and we’re just going to highlight the newest candles that are included and these are the 50 candles that are included in the calculation all right so this value here calculated the average price from this price all the way back to this price and it’s just a regular average nothing special about it and it’s pretty interesting that this is how it’s done I’m gonna actually show you how to do this on trading view now let me open up this particular indicator we’re going to hide this one I’m going to show you this indicator this is the exact same thing all we’re doing is we’re telling the chart here that we’re going to plot a simple moving average 50 periods back well using 50 periods back and we’re going to be using the closing price the closing price is where the candle ends so if you have a green candle the closing price is at the top you have a red candle the closing prices at the bottom so it’s where the price ends at the end of the day we’re calculating all of those up and we’re going back 50 periods and we’re getting our average this is all done for is in training view using the simple moving average function and then we just tell it to plot that on the chart now to illustrate this a bit more I’m going to comment that out so it doesn’t plot that anymore but we’re actually going to be using some more code down here where we are going to be doing the actual addition and division to come up with the moving average and we’re gonna see if it matches let me see if this will actually save here okay you know we’ve got to have something to plot it won’t work right now there’s nothing being shown on the screen let’s go over this so we’re going to be looking back 50 periods in our calculation we’re going to have to store the sum of all of these numbers now we’re going to have to use a loop if you’re coding to go back through each candle so we’re gonna start here and we’re gonna go back every candle and we’re just gonna add the value of its closing price to a sum and that’s what you would do if you had a list of all of these values so we’re going to go through all of the candles through 50 back add up at some once we have that we’re going to divide that by 50 once we have that we’re going to plot that on the chart and this time it’ll be red so let’s save this there you go this is the same line that we had before and to prove that we’re just gonna plot one on top of the other so this red line should change its color quite just a little bit yeah now it’s sort of a purple because it’s kind of combining that default blue color with the red color you can see we’re calculating the same values this is exactly how it’s calculated now how is the simple moving average used well according to invest opee do and we’re going to be using different resources throughout this series it’s used to kind of determine the trend using these death crosses and golden crosses as it calls them and we’re going to be looking at a 50 period moving average and a 200 period moving average or looking at the daily price so let’s do that now this is our 50 period oops and this is our one 200 period so let’s get rid of this so we can see what’s going on a bit better now according to invest opee do and anyone else will tell you who knows this when the 50 period moving average which is this one crosses below the 200 that’s considered a death cross and their takeaway is when the price goes down it can continue to go down with this pattern they say the death cross is considered a bearish signal and that further losses are in store now if you look at the chart here the death cross occurred here even though the price was still going up back here it did indicate that the trend had kind of confirmed to have been changed and that the price was gonna continue to go down this doesn’t always happen and it can’t be guaranteed to do that but this is how they are often used so let’s go back this is a golden cross and to illustrate that let me change my settings on this indicator so we can actually see a little bit better what’s going on back here okay so we have our 50 period the green line going up above the 200 period and that is the Golden Cross and that should indicate a trend where it’s moving up using the patterns that they talked about the Golden Cross occurs when a short term moving average breaks above a long term moving average and you can see that here and it does confirm in this case that the trend was to go up from that point and like I said before with the death cross that doesn’t necessarily mean that it will be that way every time now another way that people use the simple moving averages and a way that I like to use simple moving averages is a way to identify potential support and resistance and with that the reason is because in order to have your shorter term moving averages cross above the longer term moving averages the price has to go above whatever average is moving down for it to then turn up so you can see here the 200 period average was a resistance meaning the price at a hard time going above it and in other cases it acted as support here for a little while before the price went below it and you can see here it acted as a bit of resistance as well so I hope you’ve enjoyed that for this video if you liked the video please hit like if you like these videos and you want to learn about more trading indicators please hit subscribe I hope you like these videos and stick around for more in the next video I believe we’re gonna be doing the exponential moving average if you have any indicators that you would like to go over on this particular series please leave a comment in a comment section of the video and I promise you I will look at all of them so thank you all and have a nice day [Music]

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