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Moving Averages

Moving Averages Follow the Money

Moving averages are a form of technical analysis which averages the price of a stock (or any other security for that matter) to help see the direction or momentum.  Sometimes these averages can be used to set resistance or support for the price of the stock.  Also the use of crossovers of two different moving averages signals momentum and direction.

Simple Moving Average

The simple moving average (SMA) is usually what is referred if just the term moving average is used.  It is calculated by averaging the price over the previous increments of time you determine.  For example, the 50 day moving average is the average of the last 50 days of closing prices.  The 13 minute moving average is the average of the price for the last 13 minutes.  This considerably helps smooth out a bumpy chart.

Exponential Moving Average

The exponential moving average (EMA) is similar to the simple moving average except it gives more weight to recent prices then further back prices.  The 12 and 26 day EMA are the most popular short term averages and the 50 and 100 day EMA are the most popular 100 day EMA.

A Beginning Tool for Trading in the Stock Market
A Beginning Tool for Trading in the Stock Market

 

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This entry was posted on Monday, October 13th, 2008 at 7:52 pm and is filed under Glossary, Technical Analysis. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

2 Responses to “Moving Averages”

  1. [...] Bands, invented by John Bollinger, are a simple moving average (often 20 period moving average) with a plus 2 standard deviation (the standard deviation is [...]

  2. [...] prior post I’ve been talking about moving averages, support and resistance, and indicators as tools in technical analysis.  The next few post on TA I’d like to talk [...]