MOVING AVERAGES #Trading #Stocks

Topic - MOVING AVERAGES

What Is a Moving Average (MA)?

In finance, a moving average (MA) is a stock indicator commonly used in technical analysis. The reason for calculating the moving average of a stock is to help smooth out the price data by creating a constantly updated average price.

By calculating the moving average, the impacts of random, short-term fluctuations on the price of a stock over a specified time frame are mitigated. Simple moving averages (SMAs) use a simple arithmetic average of prices over some timespan, while exponential moving averages (EMAs) place greater weight on more recent prices than older ones over the time period.

KEY TAKEAWAYS

A moving average (MA) is a stock indicator commonly used in technical analysis.
The moving average helps to level the price data over a specified period by creating a constantly updated average price.

A simple moving average (SMA) is a calculation that takes the arithmetic mean of a given set of prices over a specific number of days in the past.

An exponential moving average (EMA) is a weighted average that gives greater importance to the price of a stock in more recent days, making it an indicator that is more responsive to new information.

Understanding a Moving Average (MA)
Moving averages are calculated to identify the trend direction of a stock or to determine its support and resistance levels. It is a trend-following or lagging, indicator because it is based on past prices.

The longer the period for the moving average, the greater the lag. A 200-day moving average will have a much greater degree of lag than a 20-day MA because it contains prices for the past 200 days. 50-day and 200-day moving average figures are widely followed by investors and traders and are considered to be important trading signals.