Moving averages are trend indicators; used as an instrument to arrange existing trends, determine formed trends and show end of trends by traders. Moving Averages is a smooth line helping traders to see long term price movements without being affected from short term fluctuations.
Each new point eliminates time slice and makes the newest time slice in moving average. Moving average line will show change based on figures of period selected. The biggest figure indicates the slowest average. Some traders are interested in moving average in different number in different periods until moving average emphasizing results of documents ideally is formed.
While selecting a moving average to work on, existing price should not drop below moving average line selected in a market with increasing trend. Moving average should generate a support line throughout increasing trend and a resistance line throughout decreasing trend. If rising trend continues, moving average line will break in may times; therefore high fastness of moving average line is a good indicator and not become smooth sufficiently. For instance, 30 day-moving average is used, then 45 day- moving average line will be suitable to obtain some information.
If trader is glad from moving average line against current prices, he/she can benefit from this line to show result or continuity of trend. If price is closed below moving average line in both situations in a market with rising trend, this case means that end of trend has come and position should be ended. With the same logic, current price needs closing over moving average in both situations that decrease trend is ended in the markets with decreasing trend.
Another way of applying moving average is also pairs. Most of traders firstly use long term moving average described above and bring out a faster moving average (in shorter period) informing end of trend before. If shorter moving average hinders slower moving average, this case points at an earlier finish point for trend.