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Chapter 8: Technical analysis for traders > Trend following indicators

Trend following indicators

Trend following indicators use one or more of the components of a bar, the open, high, low or close, to mathematically calculate a chart that is drawn on either the main chart with price action or as a subchart. They are used to reveal the underlying trend in the chosen time frame and, sometimes, the strength of that trend.

Moving averages

The most commonly used trend following indicator is the moving average.

A moving average is defined as the sum of n period closes divided by n, where n is the number of bars in the lookback period. This is often called a simple moving average. There are many other types of moving averages with variations on the above formula: exponential, weighted, adaptive, etc.


  

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