The moving average crossover helps to reduce the amount of noise on the price chart. Price will not always "respect" the moving average this way. The price can run a little over it or stop and turn around before reaching it.
If it slopes up, the price is generally moving up; tilted down and the price generally moves down; moves sideways and the price is most likely in a range.
Typically, if the price is above the moving average, the trend is upward. If the price is below the moving average, the trend is a downtrend. However, moving averages can be of different lengths, so one MA can indicate an uptrend and another MA indicates a downtrend.
A moving average can be measured in different ways. The five-day simple moving average (SMA) adds up the five most recently daily close prices and divides them by five to create a new average each day. Each average is connected to the next, forming a single smooth line.
One type of MA is no better than the other. The EMA may perform better in the stock or financial market for a while, while the SMA may perform better in other cases. The time frame chosen for the moving average will also play an important role in its effectiveness.
The usual moving average lengths are 10, 20, 50, 100, and 200. These lengths can be applied to any chart time frame (one minute, daily, weekly, etc.), depending on the time horizon of the trader.
Bill Williams introduced the Alligator indicator in 1995. The alligator is not only an indicator but also a metaphor. It consists of three lines superimposed on the price chart that represent the jaw, teeth, and lips of the beast and was created to help the trader confirm the trend and its direction.
The Alligator indicator can also help traders identify impulse and corrective wave formations, but this tool works best in conjunction with the momentum indicator.
The Alligator's "traits" are numerous. If the three lines intertwine, the Alligator's mouth is closed and it is said to be asleep. During sleep, he gets hungrier by the minute, waiting to come out of his nap when he eats. When the trend takes shape, the Alligator wakes up and starts eating. Once full, the Alligator closes its mouth again and falls asleep.
The Alligator indicator is common in the met trading software and the sequence of the calculation formula includes the following simple steps:
• The Alligator's Jaw, "Blue" line, is a 13-period smoothed moving average, shifted 8 bars into the future;
• The Alligator's Teeth, the red line, is an 8-period smoothed moving average shifted 5 bars into the future;
• The Alligator's Lips, the Green Line, is a 5-period smoothed moving average shifted 3 bars into the future.
The Money Flow Index (MFI) is a force indicator that evaluates the flow of money into and out of a security over a detailed period. It is linked to the Relative Strength Index (RSI) but includes volume, while the RSI only considers the price. MFI is calculated by accumulating positive and negative cash flow values (see Cash Flow) and then creating a cash ratio.
Overbought levels are usually found below 20 and overbought levels are above 80. These levels can change depending on market conditions. Level lines must cross the highest tops and lowest lows. Dealing levels are generally not a sufficient reason to buy/sell and traders should consider additional technical analysis or research to confirm the turning point of security. Be aware that as strong trends, the money flow index can remain overbought or oversold for extended periods.
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