How Can You Use Moving Averages To Your Advantage? A simple moving average is calculated by adding the closing price of a commodity such as crude oil for a number of time periods and then dividing this total by the number of time periods.
Short-term averages respond quickly to changes in the price of the underlying commodity, while long-term averages are slower to react.
I generally follow the 20 and 100 day moving averages when commodity prices break below or above in my opinion that establishes a trend which in my opinion should always be followed as the saying goes the trend is your friend.
If the 20 and 100 day have crossed to the downside and you have a long position that is telling you that you are trading against the trend which can be dangerous over the course of time.
I generally like to buy a commodity or sell a commodity when the price has hit a 20 day high or low and the simple moving average also should have crossed at that point confirming or establishing that the trend is starting.
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