Trading Commodities and Financial Futures: A Step-by-Step Guide to Mastering the Markets, Third Edition

A moving picture

Any one price is like a snapshot in time that can never tell us what the trend is. It does tell us something, but hardly the whole story. When you take 10 photographs in rapid succession, you can get a better picture of the whole story. If the story is the market, you get a better picture of the true trend by looking at the last 10 prices, as opposed to looking at just one. When you put together a series of, say, 20 blocks of 10 photos each, you then have a movie that is infinitely more informative than a photo or two. This movie is analogous to a moving average line, one that can be overlaid on a price chart. By observing the direction this line is moving and the strength (or velocity) of the move, the line can give you a sense ...