Simple Moving Average (SMA)

As the name implies, Simple Moving Average reflects the average price of a stock value of movement within a certain time frame is simple. The average price of the most commonly used is the closing price. However, this parameter can be changed by using the opening price, highest price and others. 

Time span in question can also vary according to the settings specified by the trader himself. However, the most commonly used is between 10, 20, 30, 50, 100 and 200 days. The shorter period of time that it will produce a signal that more and more sensitive. Short period of time is generally more interest to the short-term traders. On the negative side there will be many false signals. Meanwhile, the longer the period of time that otherwise would produce a signal which is slower but effective way to reduce false signals.
 
Here is a sample calculation of 5-day Simple Moving Average to calculate the closing price for 5 days, and then the result is divided by 5 to get the Simple Moving Average.
5 + 6 + 7 + 8 + 9 = 35 35: 5 = 7
 
For example on the next day's closing price is 10. Then the computation will continue as follows:
6 + 7 + 8 + 9 + 10 = 40 40: 5 = 8
 
The values ​​of these calculations appear to be a line in the charts that can provide a signal to traders. It could be a signal signal signal to buy or sell depending on stock price movements that cross the line MA. When the price moves below the cut to the top of the MA line then generate buy signals. Conversely, if the price moves from top to bottom line of the Supreme Court cut the signal generating sales (see picture). Moving Average has been declared invalid if the closing price break has been in line outside the Supreme Court. 

Sell Signal and Buy Signal derived from SMA (50) line on PCLN

SMA lines that have a shorter period will stick closer to the stock price. This means that the MA line is more suitable for traders who have more short term time horizon. In the picture can be seen the comparison between the Supreme Court a long period by using a shorter period. 

Comparison of SMA(20) and SMA(50).  It's look that SMA(20) is more sensitive to give faster signal but more often produce the bad signals.

When observed it was obvious that all is Lagging Indicators Moving Averages are always in the back of the price. In the category as a trend following indicators, when stock prices are an uptrend it will overshadow the MA lines from the bottom, if the price is a downtrend then the MA line is overshadowing from above.
 
Simple Moving Average (SMA) also has some drawbacks that seek to overcome with the development will be WMA (Weighted Moving Average) and EMA (Exponential Moving Average). Shortage is said to be due to MA only covers a certain time period only. For example use MA (10), then the price is included only covers 10 days closing price. Then the problem of weighting in the calculation was also criticized for the same weighting used in every day. For example in MA (10), the price of the first day has the same weight (10%) by weight of the price of the last day (which is also considered to be 10%). Experts say that the price on the last day should have more weight is important because it reflects the actual conditions at that time.

Moving Averages (MA)

Moving averages (MA) is the indicator most widely used by the technical analysis because it is very easy to use, or analyzed. From this indicator will develop many variants of indicators that will be discussed one by one.
 
Stock price history data used in a formula and the results are displayed as a line on the charts. This line is used to detect the trend of stock price movements, which gives the signal a new trend, or as confirmation that the ongoing trend to reversal. Moving average line can also be used as a substitute for conventional trend lines in the function of determining support and resistance. Other functions of the moving average that is no less important is to dampen the fluctuations are too wild to stock prices and other indicators.

Broadly speaking, moving averages are divided into three types, namely:

• SMA (Simple Moving Average)
• WMA (Weighted Moving Average)
• EMA (Exponential Moving Average)

Technical Indicators

Technical indicators are a method of analysis resulting from the calculation of a formula of the previous data for the purpose of predicting future price movements. Chart patterns and technical indicators are often referred to as the method of the west, while the candlestick is the method of the east. But they can all be used simultaneously to complement each other.

Some traders are using technical indicators as a tool of the main (primary tools), some are just using it as a tool of confirmation (secondary tools) against other methods, such as confirmation of the signal obtained from chart patterns and candlesticks. For time efficiency in the search for candidate stocks, these indicators can also be used as filters in charting software, and the new filter is then examined one by one manually.

Technical indicators broadly divided into two groups, namely lagging indicators and leading indicators. Lagging indicators are indicators that serve to detect trends, such as Moving Averages. While the leading indicator is the indicator which serves to read the momentum of a market being oversold or overbought whether, for example, RSI (Relative Strength Index).