In this class, we will discuss a very core concept in trading: technical indicators.

In technical analysis, technical indicators are important tools that help traders identify potential buying or selling opportunities. They analyze market trends and determine the timing of buy or sell actions through mathematical calculations of historical market data (such as price, volume, time period, etc.).

In this issue, we will introduce the most basic technical indicator: Moving Average (MA), which is also the foundation for many complex technical indicators.

MA is mainly divided into 3 categories:
1️⃣ Simple Moving Average (SMA)

The Simple Moving Average (SMA) is the most basic moving average, averaging the prices over a specified time period. It smooths out price fluctuations and reflects the average cost in the market.


Characteristics

  • Assigns the same weight to prices over all periods.

  • Good trend-following ability.

  • Reacts slowly to price changes, exhibiting lag.

2️⃣ Exponential Moving Average (EMA)

Exponential Moving Average gives higher weight to recent prices, allowing it to respond to price changes more quickly than SMA, making it suitable for short-term or rapidly fluctuating markets.


Characteristics

  • EMA is more sensitive to recent price fluctuations.

  • Because the current value includes the EMA of the previous period, EMA has a 'cumulative effect'.


3️⃣ Weighted Moving Average (WMA)

Weighted Moving Average assigns weights to the prices of each period, giving more weight to recent prices, emphasizing the latest market dynamics.


Characteristics

  • WMA is more sensitive to recent price fluctuations and has a more flexible weight distribution.

  • It responds faster to short-term changes than SMA and EMA.

There are quite a few commonly used indicators, so I won't introduce them in detail one by one. A comparison of different indicators is shown in the image below. If you want to know the details, you can follow the official account on the homepage.

In the future, I will break down commonly used indicators and explain their principles to help us better use these indicators in combination.