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Unformatted text preview: Updated 09/06/2006 Moving Averages Tutorial By Casey Murphy , ChartAdvisor.com http://www.investopedia.com/university/movingaverages/default.asp Thanks very much for downloading the printable version of this tutorial. As always, we welcome any feedback or suggestions. http://www.investopedia.com/contact.aspx Table of Contents 1) Moving Averages: Introduction 2) Moving Averages: What Are They? 3) Moving Averages: How To Use Them? 4) Moving Averages: Factors To Consider 5) Moving Averages: Strategies 6) Moving Averages: Different Flavors 7) Moving Averages: Conclusion Introduction Technical analysis has been around for decades and through the years, traders have seen the invention of hundreds of indicators . While some technical indicators are more popular than others, few have proved to be as objective, reliable and useful as the moving average . Moving averages come in various forms, but their underlying purpose remains the same: to help technical traders track the trends of financial assets by smoothing out the day-to-day price fluctuations, or noise . By identifying trends, moving averages allow traders to make those trends work in their favor and increase the number of winning trades. We hope that by the end of this tutorial you will have a clear understanding of why moving averages are important, how they are calculated and how you can incorporate them into your trading strategies. What Are They? Among the most popular technical indicators, moving averages are used to (Page 1 of 18) Copyright © 2006, Investopedia.com - All rights reserved. Investopedia.com – the resource for investing and personal finance education. This tutorial can be found at: http://www.investopedia.com/university/movingaverages/default.asp gauge the direction of the current trend. Every type of moving average (commonly written in this tutorial as MA) is a mathematical result that is calculated by averaging a number of past data points. Once determined, the resulting average is then plotted onto a chart in order to allow traders to look at smoothed data rather than focusing on the day-to-day price fluctuations that are inherent in all financial markets. The simplest form of a moving average, appropriately known as a simple moving average (SMA), is calculated by taking the arithmetic mean of a given set of values. For example, to calculate a basic 10-day moving average you would add up the closing prices from the past 10 days and then divide the result by 10. In Figure 1, the sum of the prices for the past 10 days (110) is divided by the number of days (10) to arrive at the 10-day average. If a trader wishes to see a 50-day average instead, the same type of calculation would be made, but it would include the prices over the past 50 days. The resulting average below (11) takes into account the past 10 data points in order to give traders an idea of how an asset is priced relative to the past 10 days....
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This note was uploaded on 05/17/2010 for the course BUS 001 taught by Professor Gra during the Spring '99 term at American University in Cairo.
- Spring '99