Perhaps the simplest to understand and most widely used technical indicator is a moving average, which smoothes past data to illustrate existing trends or situations where a trend may be ready to begin or is about to reverse. A moving average helps you spot market direction over time rather than being caught up in short-term erratic market fluctuations. There are three main types of moving averages: (1) Simple. Each price point over the specified period of the moving average is given an equal weight. You just add the prices and divide by the number of prices to get an average. As each new price becomes available, the oldest price is dropped from the calculation. (2) Weighted. More weight is given to the latest price, which is regarded as more important than older prices. If you used a three-day weighted moving average, for example, the latest price might be multiplied by 3, yesterday’s price by 2 and the oldest price three days ago by 1. The sum of these figures is divided by the sum of the weighting factors – 6 in this example. This makes the moving average more responsive to current price changes. (3) Exponential. An exponential moving average is another form of a weighted moving average that gives more importance to the most recent prices. Instead of dropping off the oldest prices in the calculation, however, all past prices are factored into the current average. The current EMA is calculated by subtracting yesterday’s EMA from today’s price and then adding this result to yesterday’s EMA to get today’s EMA. An EMA generally produces a smoother line than other forms of moving averages, which can be an important factor in choppy market conditions. Market participants use moving averages of closing prices over different periods to predict key levels of resistance and support for oil prices.