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How to Read and Interpret The Moving Average 

Last Updated: June 16, 2021

By Rayner Teo

Do you feel confused when it comes to reading the moving average indicator on your chart?

Don’t worry.

Because in this post, you’ll learn how to read a moving average indicator step by step—even if you have tried everything else and failed.

So let’s get started…

What is moving average and how does it work?

The moving average indicator calculates the average price over a given period.

For example:

If you would like to learn more about other moving average period, then check out the following articles:

So, let’s use the 10-period moving average as an example.

If the last 10 candles are mostly heading higher, the moving average will have a higher value.

If the last 10 candles are heading lower, the moving average will have a lower value.

In other words, the moving average is an indicator that follows the price (which is why it’s also known as a trend following indicator).

Now…

To interpret and read a moving average indicator, you must consider 2 things…

  1. The length of the moving average
  2. The timeframe

Let me explain…

The Length of The Moving Average

As you know, the moving average can have a different lookback period (E.g. a 10-period moving average looks back at the last 10 candles).

This means a moving average indicator can identify different types of trend—whether it’s a short-term, medium-term, or long-term trend.

Here’s how…

  • For short-term trend, you can use the 10-period moving average
  • For medium-term trend, you can use the 50-period moving average
  • For long-term trend, you can use the 200-period moving average

This means if the price is above the 10-period moving average, then you can conclude the short-term trend is up.

And if the price is below the 50-period moving average, then the medium-term trend is down.

And finally…

The Timeframe

As you know…

A 10-period moving average on a 1-hour timeframe is different from a 10-period moving average on a daily timeframe.

So, how do you reconcile this difference?

Simple.

When you read a moving average, it’s relative to the timeframe you’re on.

Here’s how to read a moving average on different timeframes…

A 10-period moving average on a 1-hour timeframe means you’re looking at a short-term trend on the 1-hour timeframe.

A 10-period moving average on a daily timeframe means you’re looking at a short-term trend on the daily timeframe.

A 200-period moving average on a 15mins timeframe means you’re looking at a long-term trend on the 15mins timeframe.

Does it make sense?

If you would like to learn more about moving average, you may like to check out my guide on moving average trading strategy.

Conclusion

To read a moving average, you must know the length of the moving average and the timeframe you’re on.

So… 

A 10-period moving average on a 1-hour timeframe means you’re looking at a short-term trend on the 1-hour timeframe.

And a 10-period moving average on a daily timeframe means you’re looking at a short-term trend on the daily timeframe.

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