What Is a Moving Average (MA)?

In technical analysis, traders use various indicators to help make buy and sell decisions. One such indicator is the moving average, which helps smooth out daily price movements to help establish a trend in price by creating a constantly updated 澳洲幸运5开奖号码历史查询:average price.

By calculating the moving average, the impacts of random, short-term fluctuati🎃ons 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 ol🗹der ones over the time period.

How a Moving Average (MA) Works

Moving averages are calculated to identify the 澳洲幸运5开奖号码历史查询:trend direction of a stock or to determi🔯ne its support and resistance levels. It is a trend-following or laggi༒ng 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. Fifty-day and 200-day moving average figures are widely followed by investors and traders and are considered to be important 澳洲幸运5开奖号码历史查询:trading signals.

Investors may choose different periods of varying lengths to calculate moving averages based on their trading objectives. Shorter moving averages are typically used for short-term tra🐼ding, while longer-term moving averages are more suited for long-term investors.

While♕ it is impossible to predict 🌠the future movement of a specific stock, using technical analysis and research can help make better predictions. A rising moving average indicates that the security is in an uptrend, while a declining moving average indicates that it is in a downtrend.

Similarly, upward momentum is confirmed with a bullish 澳洲幸运5开奖号码历史查询:crossover, whic𒆙h occurs when a short-term moving average crosses above a lo⭕nger-term moving average. Conversely, downward momentum is confirmed with a bearish crossover, which occurs when a short-term moving average crosses below a longer-term moving average.

Types of Moving Averages

Simple Moving Average

A 澳洲幸运5开奖号码历史查询:simple moving average (SMA) is calculated by taking the arithmetic mean of a given set of values over a specified period. A set of numbers, o💝r prices of stocks, is added together and then divided by the number of prices in the set. The formula for calculating the simple moving average of a security is as ﷽follows:

$\begin{aligned} &SMA = \frac{ A_1 + A_2 + \dotso + A_n }{ n } \\ &\textbf{where:} \\ &A = \text{Average in period } n \\ &n = \text{Number of time periods} \\ \end{aligned}$​SMA=nA1​+A2​+…+An​​where:A=Average in period nn=Number of time periods​

Charting stock prices over 50 days using a simple moving average may look like this:

Exponential Moving Average (EMA)

The 澳洲幸运5开奖号码历史查询:exponential moving average gives more weight to recent prices in an attempt to make them more responsive to new information. To 澳洲幸运5开奖号码历史查询:calculate an EMA, the simple moving avera🥀ge (SMA) over a particular peri༒od is calculated first.

Then calculate the multiplier for weighting the EMA, known as the "smoothing factor," which typically follows the formula: [2/(selected time period + 1)]. 

For a 20-day moving average, the multiplier would be [2/(20+1)]= 0.0952. The smoothing factor is combined with the previous EMA to arrive at the current value. The EMA thus gives a higher weighting to recent prices, while the SMA assigns an equal weighting to all values.

$\begin{aligned} &EMA_t = \left [ V_t \times \left ( \frac{ s }{ 1 + d } \right ) \right ] + EMA_y \times \left [ 1 - \left ( \frac { s }{ 1 + d} \right ) \right ] \\ &\textbf{where:}\\ &EMA_t = \text{EMA today} \\ &V_t = \text{Value today} \\ &EMA_y = \text{EMA yesterday} \\ &s = \text{Smoothing} \\ &d = \text{Number of days} \\ \end{aligned}$​EMAt​=[Vt​×(1+ds​)]+EMAy​×[1−(1+ds​)]where:EMAt​=EMA todayVt​=Value todayEMAy​=EMA yesterdays=Smoothingd=Number of days​

Simple Moving Average (SMA) vs. Exponential Moving 🔯A൲verage (EMA)

The calculation for EMA puts more emphasis on the recent data points. Because of this, EMA is considered a 澳洲幸运5开奖号码历史查询:weighted average calculation.

In the figure below, the number of periods used in each average is 15, but🌺 the EMA responds more quickly to the cha🌳nging prices than the SMA.

The EMA has ཧa higher value when the price is rising than the SMA, and it falls faster than the SMA when the price is declining. This responsiveness to price changes is the main reason why some traders prefer to use the EMA over the SMA.

Example of a Moving Average

The moving average is ꦗcalculated differently depending on the type: SMA or EMA. Below, we look at a simple moving average (SMA) of a security with the following closing priꦇces over 15 days:

• Week 1 (5 days): 20, 22, 24, 25, 23
• Week 2 (5 days): 26, 28, 26, 29, 27
• Week 3 (5 days): 28, 30, 27, 29, 28

A 10-day moving average🐓 would average out the closing prices for the first 10 days as the first data point. The next data point woulꦇd drop the earliest price, add the price on day 11, and take the average.

Example of a Moving Average Indicator

A 澳洲幸运5开奖号码历史查询:Bollinger Band® technical indicator has bands generally placed two 澳洲幸运5开奖号码历史查询:standard deviations away from a simple moving average. In general, a move toward the upper band suggests the asset is becoming overbought, while a move close to the lower band suggests t♌he asset is becoming oversold. Since standard deviation is used as a statistical measure of volaওtility, this indicator adjusts itself to market conditions.

How Will I Use This in Real Life?

As a trader, using moving averages will help you make buy and sell decisions. MAs smooth out a stock's daily price noise so you can easily see how it's trending: up, down, or staying flat. For example, if the price is consistently above the 200-day moving average, that's considered a signal for long-term strength, indicating you'd want to buy or hold.

You can also use MAs to gauge the general mood of the market. Rather than worry about every dip or jump in stock prices, looking to see where the trend is going will help you make more informed decisions without reacting emotionally. Moving averages work well for both seasoned and beginner investors, aiding them in seeing the bigger picture in the market.

The Bottom Line

A moving averag♏e (MA) is a stock indicator commonly used in technical analysis, used to help smooth out price data by creating a constantly updated average price. A rising moving average indicates that the security is in an uptrend, while a declining moving average indicates a downtrend.

The exponential moving average is generally preferred over a simple moving average as it gives more weight to recent prices and shows a clearer response to new information and trends.