5 Types of Moving Averages

So what are the types of moving average and how do they work? Well, in this section of the video, I'm going to show you what a simple moving average is, what an exponential moving average is, what a weighted moving average is, as well as the hull moving average and the Tema TEMA moving average. But before we go any further, make sure you hit the subscribe button and give this video a thumbs up so that you get notified of all of my future videos. Because I've got new trading content coming out all the time and I don't want you to miss a thing. So on the screen in front of me, you can see the.

Weighting of a simple moving average. Now, a simple moving average takes the price of the last n number of bars and performs a simple average of those bars, which means the weighting of each of the last n number of bars is exactly the same. So if it's a 10 day moving average, then today's price and yesterday's price and each price for the last 10 days all receive the same equal weighting.

In the moving average calculation. So that's why, as you can see in the simple diagram here I've shown, it's an even weighting over each of the different bars. Now that's quite different to an exponential moving average. An exponential moving average seeks to place more weighting, more emphasis on, on the more recent price data. So the calculation of the exponential moving average is much more complicated. You don't have to do it by hand because your trading software will do it for you. But what it does essentially is place a much higher weight on the current data point and decreasing weight on each of the previous data points. So how does that work in practice? Let's have a look here. We can see the exponential moving average is a much higher weighting up on the most recent price. And then each historical price gets less and less and less weighting all the way back. And so if you're doing it, say a 10 day moving average, the 10th day, the 10 days prior gets a much smaller weighting than the current price. And so the exponential moving average is obviously then much more responsive to price movements than the simple moving average is. The simple moving average moves slowly because it's averaging each of the last, say, 10 days. Whereas the exponential moving average is putting much more emphasis on the more recent bars. So it's much more sensitive and, and moves much more quickly. Now the weighted moving average is somewhat similar to the exponential moving average, except instead of placing exponentially more emphasis on the recent bars, it places the Weighting on each of the historical bars is in a linear sort of profile. So on the screen you can see here the weighting of each of the bars in the weighted moving average. It decreases in a linear fashion all the way back to the nth most recent bars. So the current bar gets a certain weighting and then the previous bar gets a little less and a little less and a little less. But it's less responsive. Less emphasis is placed on the more recent bar than you do on the than you get on the exponential moving average here. So weighted moving average places much more emphasis on the recent bar than say the simple moving average, but, but less on the recent bar than say the exponential moving average. Now there's also the hull moving average and the tema. The hull moving average is a much more complicated calculation, as is the tema. And so you can look at those down below in the next video where I talk about the formulas for each of the different moving averages. Let's have a quick look on the chart and see what the chart looks like for for each of the different types of moving average. So again, here I've got the chart of the S&P 500 index and I've overlaid a 200 day moving average. I've got a simple moving average in black and I've got an exponential moving average in blue. Got a weighted moving average in green and a TEMA moving average in purple. Now let me just find the hull moving average and I'll drop this on the chart as well. Okay, so I've dropped the hull moving average onto the chart in red. So you can see here the hull moving average along here and the hull moving average behaves quite similarly to tema. As you can see, they're a little bit obviously it's a different calculation so they move differently. But if you're looking for more responsive moving averages, then TEMA and hull are good moving average to use. If you're looking for less responsive, then simple exponential and weighted will do the job. In the next video, I'm going to show you the formulas for each of the different types of moving averages so you know how to calculate them. So if you want to know how to calculate each of these different types of moving averages, watch this video now. But just remember, you don't have to calculate them by hand because your charting software will do that for you. And worst case scenario, you can do it in the spreadsheet. But it is something you should understand how they're calculated so you know what you're actually working with. So watch this video to find out how moving averages are calculated. It.