What it is
A moving average averages price over a lookback window. Simple averages weight all bars equally; exponential averages weight recent bars more heavily.
How traders use it
- To define trend direction
- As dynamic support and resistance
- For crossover signals between two lengths
Worked example
Price pulls back to the 20 EMA inside a daily uptrend and holds it. That reaction is the entry area for a trend pullback trade.
Limitations
- Always backward looking
- Whipsaws in sideways markets
Common mistakes
- Assuming a specific average must hold
- Optimising lengths to fit past data
Educational content only. TradeCaster does not provide financial advice and past results never imply future performance.