Signals and indicators
Moving average
Also called: MA, EMA, SMA
A moving average is the average price of the last N candles, recalculated every candle, used to smooth price and show trend direction.
A moving average is the average of the last N closing prices, recalculated as each new candle arrives. Plotted as a line, it smooths out candle-to-candle noise so direction is easier to see. The simple moving average, SMA, gives every candle equal weight. The exponential moving average, EMA, gives recent candles more weight and so turns sooner.
Traders use it in three ways. The slope shows trend: rising, falling or flat. Price relative to the line shows which side is in control on that timeframe. And crossovers, a faster average crossing a slower one, are used as entry and exit triggers. Common lengths are 9, 20, 50 and 200, but no length is correct; they are conventions.
On Indian intraday charts, a 20-period EMA on the 5 or 15-minute chart is a popular guide for Nifty and Bank Nifty, and the 200-day average is widely watched on stocks for the long-term trend. The same length means different things on different timeframes: 20 candles is 100 minutes on a 5-minute chart and about a month on a daily chart.
The common mistake is forgetting that a moving average lags. It is built from past prices and confirms a move after it has begun. In a sideways market price crosses the line repeatedly, and crossover systems whipsaw. The other mistake is tuning lengths until the past looks perfect, which says little about the future.
Worked example
A 5-period SMA and EMA worked by hand
Illustrative numbers: five Nifty closes of 24,960, 24,980, 25,000, 25,020 and 25,040 add up to 1,25,000, so the 5-period SMA is 25,000. The next close is 25,090. The SMA drops 24,960 and adds 25,090: the sum is 1,25,130 and the SMA is 25,026. An EMA of the same length uses a multiplier of 2 divided by 6, or one third. Starting from 25,000, it moves one third of the 90-point gap, to 25,030. The EMA has reacted a little faster.
In WizeBuySell
We do not publish the internals of the WizeBuySell indicators, so this page does not tell you which averages, if any, they use. What appears on the chart is the finished trade: what to buy or sell, the strike and expiry for options, and the targets and stop-loss. You can add your own moving averages to the same TradingView chart as a trend reference, within your TradingView plan's indicator limit.