# Moving Average Forecasting Formula

Do you use moving average forecasting to help plan your trades? The 50 sma, 100 sma, and 200 are the most popular simple moving average lines, and the nine ema, 13 ema, and 20 are the most popular exponential moving average lines. When the price is near these levels, it shows very important support and resistance levels. Pay close attention to crossovers as well. Technical analysis can be a great tool to help you find the best entries, exits, stop losses, support, and resistance.

## Moving Average Forecasting Introduction

Moving average forecasting can be useful for long-term trades. The two types of moving averages most commonly used in swing trading and intraday trading are Simple Moving Averages (SMA) and Exponential Moving Averages (EMA). These two types of moving averages may appear similar on the chart. However, their characteristics are developed from different mathematical formulas with different results.

Every day, someone will ask a question about moving averages, stop loss, profit target, or support and resistance lines in the Bullish Bears day trade chat room.

I wanted to take this opportunity to answer those questions more fully. Before we get into the charts, let’s take a minute to understand the math formula behind the moving averages fully.

Moving average forecasting is used in all types of trade strategies. As a result, moving averages find support and resistance levels and calculate a stop percentage. They can even find a profit target during an intraday scalp, hold, and swing trade.

Hence, proper use of moving averages can protect the trader’s portfolio by perhaps staying out of a trade. You can even protect profits by remaining in a trade until a more profitable exit is shown.

http://tos.mx/l45fPx <— ThinkOrSwim Link to this Chart Example (SPX 4-Hour)

### Moving Average Forecasting Basics

Let’s take a look at how we can use the simple moving average in moving average forecasting. In the formula for an SMA, the oldest candle of data drops away, and the newest candle of data takes its place.

For example, in a 5 SMA formula using a daily chart with Daily Closing Prices (candles) of \$111, \$112, \$113, \$114, \$115, \$116, and \$117, we can calculate the formula:

5-day SMA: (1st day 111 + 2nd day 112 + 3rd day 113 + 4th day 114 + 5th day 115) / 5 = 113

Five-day SMA: (2nd day 112 + 3rd day 113 + 4th day 114 + 5th day 115 + 6th day 116) / 5 = 114

5-day SMA: (3rd day 113 + 4th day 114 + 5th day 115 + 6th day 116 + 7th day 117) / 5 = 115

These final numbers (113, 114, and 115) form the line that develops the SMA across the chart. It presents a picture of the ‘simple price average’ (or a picture of the common price) of the ticker symbol.

The five-day ‘average’ is also the calculated middle number in this example. The lower numbers cause this moving average to ‘lag’ and find the middle (or the mean or the ‘average’).

The 5 SMA study answers this question: over the last five days (or the last five candles), what was the average price of this ticker? The SMA is also called the average, the rolling average, and the moving mean. How can you use that in moving average forecasting?

##### COURSE
DESCRIPTION Learn how to read penny stock charts, premarket preparation, target buy and sell zones, scan for stocks to trade, and get ready for live day trading action
Learn how to buy and sell options, assignment options, implement vertical spreads, and the most popular strategies, and prepare for live options trading How to read futures charts, margin requirements, learn the COT report, indicators, and the most popular trading strategies, and prepare for live futures trading
INCLUDED

### Moving Average Forecasting Lags

Notice that the moving average lags behind the price in this equation. On day 5, with a price of \$115, the moving average is \$113. On day 6, the price was \$116, and the moving average was \$114.

Again, on day 7, the price is \$117, and the moving average is \$115. This lag happens because the price needed to produce the moving average has already happened.

This indicator looks back at previous price actions to calculate the moving average. This is also a lagging indicator because it takes these numbers and seeks to find the middle.

Thus, the price was further back than the current price action. Even as a ‘lagging average,” the SMA is one of the most valued indicators in the trader’s toolbox.

http://tos.mx/OYtlQl <— ThinkOrSwim Link to this Chart Example (/YM DOW Futures 4-Hour)

### EMA's

Let’s look at how we can use the EMA for moving average forecasting. With an understanding that the Simple Moving Average lags, the Exponential Moving Average was developed as an extension of the SMA to reduce this lag.

The EMA is calculated from the whole of the previous price action. This is the first reason the EMA is better suited for a smaller time frame, such as an intraday chart.

Since the EMA must begin somewhere, the Simple Moving Average is calculated first. Then, weights are applied to give the prices closer to the current price more consideration.

The SMA uses a math formula that removes a number before adding a new one. The EMA keeps all the previous data and adds the new price action to the rolling average with some weights applied.

The EMA weight is calculated based on the length of the EMA chosen. The formula for a 10-day EMA would look like this:

10 SMA: 10-bar total / 10

Multiplier: (2 / (10 + 1) ) = 0.1818 (18.18%)

EMA: Close – EMA(previous bar) x multiplier + EMA(previous bar)

### Moving Average Forecasting Example

As you see in this example, the EMA uses the ‘previous bar’ to begin its calculations, so the SMA is calculated first and used as the ‘previous bar.’ This formula is then applied to each bar between the start of the EMA and the current bar.

Just as the SMA had a weakness by lagging and focusing on the middle of all bars calculated, the EMA had a weakness due to the weight applied to each bar.

An EMA with a long length will lose weight as the calculation is applied. The 10 EMAs above weigh 18.8%, but an EMA of 20 only weighs 9.52%.

Each time the EMA length is doubled, the weight drops by half. This is the second reason the EMA is better suited for a smaller time frame (such as an intraday chart)—something to consider when moving average forecasting.

Each trader must decide their purpose for choosing the moving average and their goal for using the different lengths on the moving averages.

A typical setup for an intraday chart would be using the SMA as the longer-length moving average (to identify support and resistance) and the EMA as the shorter-length moving average (to identify trend reversal and trade signals).

http://tos.mx/9LMpal <— ThinkOrSwim Link to this Chart Example (/YM DOW Futures 4-Hour)

### Final Thoughts

Moving average forecasting can help you determine many important aspects of trading. The charts demonstrate how the moving averages can offer a trader’s perspective on the potential price action before taking a trade.

Knowing where strong support or resistance is before entering a trade can offer the trader perspective on stopping loss, target entry/exit, or avoiding taking a trade. Traders can protect their portfolios or profits by observing how price respects these levels.

### Harmonic Patterns

Have you heard of Harmonic patterns? Technical analysis can be a polarizing subject in the world of investing. Some traders swear by it, while others

### Super Bowl Stock Indicator

Have you heard of the Super Bowl stock indicator? Millions of Americans and global citizens tune in around the globe every year to watch the

### Best Market Trend Technical Indicators

Technical analysts often say the trend is your friend. In other words, a stock going up in price will likely keep going up. Alternatively, one

### Fundamental Analysis vs Technical Analysis Differences

What are the differences between fundamental analysis vs technical analysis? They’re two schools of thought that investors use to trade in the stock market. Is

### Fibonacci Retracement Definition in Trading

Do you know the Fibonacci Retracement definition? We need to know where to expect support and resistance levels with technical trading. Fibonacci retracements are horizontal

Technical Analysis

### Harmonic Patterns

Technical Analysis

### Super Bowl Stock Indicator

Technical Analysis

### Best Market Trend Technical Indicators

Technical Analysis

### Fundamental Analysis vs Technical Analysis Differences

If you’ve looked for trading education elsewhere then you’ll notice that it can be very costly.

We are opposed to charging ridiculous amounts to access experience and quality information.

That being said, our website is a great resource for traders or investors of all levels to learn about day trading stocks, futures, and options. Swing trading too!

On our site, you will find thousands of dollars worth of free online trading courses, tutorials, and reviews.

We put all of the tools available to traders to the test and give you first-hand experience in stock trading you won’t find elsewhere.

Our content is packed with the essential knowledge that’s needed to help you to become a successful trader.

It’s important to treat day trading stocks, options, futures, and swing trading like you would with getting a professional degree, a new trade, or starting any new career.

Invest the proper time into your Trading Education and don’t try to run before you learn to crawl. Trading stocks is not a get-rich-quick scheme. It’s not gambling either, though there are people who treat it this way. Don’t be that person!

### STOCK TRADING COURSES FOR BEGINNERS

The Bullish Bears team focuses on keeping things as simple as possible in our online trading courses and chat rooms. We provide our members with courses of all different trading levels and topics.

If you’re a beginner, intermediate level, or looking for expert trading knowledge…we’ve got you covered.

We have a basic stock trading course, swing trading course, 2 day trading courses, 2 options courses, 2 candlesticks courses, and broker courses to help you get started. Free.

Just choose the course level that you’re most interested in and get started on the right path now. Become a leader, not a follower. When you’re ready you can join our chat rooms and access our Next Level training library. No rush. We’re here to help.