Smoothing the noise to see direction, and measuring how volatile the market currently is.
~5 min for this grade0/3 lessons read
Technical Indicators
1 min
Moving Averages
1 min
Figure — a fast and a slow moving average; the crossover flags a new trend
A moving average smooths out price action by continuously averaging the closing price over a set number of periods. By watching the slope of that average, you get a rough forecast of where price may be headed, smoother averages lag more but filter out noise better; choppier averages react faster but are more prone to false signals.
Simple Moving Average (SMA): add up the last X closing prices and divide by X. A 5-period SMA on an hourly chart, for instance, averages the last five hourly closes. The longer the period, the smoother, and the more it lags behind current price.
Exponential Moving Average (EMA): weights recent prices more heavily than older ones, which makes it less susceptible to being thrown off by a single anomalous spike, and more responsive to what traders are doing right now rather than what they did last week.
Choosing between them: a shorter EMA reacts quickly, which helps you catch trends early but makes you more prone to false signals from short-lived spikes. A longer SMA is slower and smoother, filtering out noise at the cost of entering trends later and sometimes missing them altogether. Many traders use both together, a longer SMA to gauge the broader trend, a shorter EMA to time entries, and many trading systems are built around "moving average crossovers," where a faster average crossing a slower one signals a potential shift in trend.
Bollinger Bands
1 min
Figure — Bollinger Bands squeeze in quiet markets and expand when volatility returns
Bollinger Bands measure volatility: they contract when the market is quiet and expand when it's active. Two common strategies:
The Bollinger Bounce, price tends to gravitate back toward the middle of the bands, so a touch of the upper or lower band can suggest a move back toward the center. This works best in a ranging (non-trending) market, since the bands act like dynamic support and resistance.
The Bollinger Squeeze, when the bands compress tightly together, it typically signals an imminent breakout. If price breaks above the upper band, the move tends to continue upward; a break below the lower band tends to continue downward. This setup is designed to catch a new move as early as possible and shows up periodically on shorter time frames.
End-of-grade test
Answer all 3 questions. Score 67% or more to pass this grade.
1. A moving average crossover is typically used to…
