Types of Oil Trading Moving Averages
There are 4 types of oil trading moving averages:
- Simple oil trading moving average
- Exponential oil trading moving average
- Smoothed oil trading moving average
- Linear weighted oil trading moving average
The difference between these 4 oil trading moving averages is the weight assigned in to the most recent oil price data.
Simple Moving Average
Oil Trading SMA indicator applies equal weight to the oil trading data used to calculate the simple moving average and is calculated by summing up the crude oil price periods of a oil chart and this value is then divided by the number of such crude oil price periods. For example oil trading simple moving average 10, adds the crude oil price data for the last 10 crude oil price periods and divides them by 10.
Exponential Moving Average
Oil Trading EMA indicator applies more weight to the most recent crude oil price data and is calculated by assigning the latest crude oil price values more weight based on a percent P, multiplier that is used to multiply and assign more weight to the latest oil price data.
Linear Weighted Moving Average
Oil Trading LWMA indicator moving averages applies more weight to the most recent crude oil price data and the latest data is of more value than earlier crude oil price data. Linear Weighted oil trading moving average is calculated by multiplying each of the oil trading closing oil prices within the series, by a certain weight coefficient.
Smoothed Moving Average
Oil Trading SMMA Indicator is calculated by applying a smoothing factor of N, the smoothing factor is composed of N smoothing for N crude oil price periods.
The oil chart example explained below shows SMA, EMA and LWMA. The SMMA oil trading moving average isn't oftenly used so it isn't shown below.
The LWMA oil indicator reacts fastest to crude oil price data, followed by the EMA and then the SMA.
SMA, LWMA, EMA - Types of Oil Moving Averages - SMA, EMA and LWMA
Day Trading Oil with Exponential and Simple Moving Averages
The SMA and EMA oil trading moving averages are the most commonly used Moving averages to trade oil. Whereas the EMA oil trading moving average has a more sophisticated method of calculation, its more popular than the SMA oil trading moving average.
Simple Moving Average is the arithmetic mean of the closing oil prices in the crude oil price period based on the set time period where each time period is added and then it is divided by the number of time crude oil price periods chosen. If 10 is the crude oil price period used the crude oil price for the last ten crude oil price periods added up then it is divided by 10.
SMA oil indicator is the result of a simple arithmetic average. Very simple and some Oil traders tend to associate with the oil trend since it closely follows crude oil price action.
EMA on the other hand uses an acceleration factor and it is more responsive to the oil trend.
The SMA oil trading moving average is used in oil charts to analyze crude oil price action. If the crude oil price action in more than 3 or 4 time crude oil price periods the SMA then it's an indication that long crude oil trades should be closed immediately and the bullish momentum of the buy oil trade is waning.
The shorter the SMA crude oil price period the faster it is to respond to crude oil price change. SMA oil indicator can be used to show direct information regarding the oil trend of the crude oil market and the strength by looking at its slope, the steeper or more pronounced slope of the SMA is, the stronger the Oil Trading trend.
The Exponential Moving Average is also used by many oil traders in the same way but it reacts faster to the crude oil market moves and therefore it is more preferred by some crude oil traders.
The SMA and EMA can also be used to generate entry and exit points when oil trading. These Moving averages can also be combined with Fibonacci and ADX technical indicators to generate confirmation the oil signals generated by these moving averages.
