Simple moving average (SMA) – The most common type of moving average takes the sums of past closing prices over a set period of time and divides that number by the number of data or price points.
There are many types of moving average with the three most common being: For example, a trader may use a nine-day moving average based on the daily close then compare it with another technical indicator, such as the volume weighted average price, to determine if a specific trade meets their criteria.
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While common moving average collection periods are 10, 20, 50, and 200-days, modern charting software allows you to establish the number of days along with intraday periods for calculation. While moving average is most commonly used, the rolling average is often used in statistics, while trailing average is preferred by MS Excel experts.
Different industries will use one term over the others. Rolling average, trailing average, and moving average all mean the same thing. Show the ad after second paragraphĪ moving average (MA) collects the closing price of a specific stock for a set period of time, usually over a couple of days, and then averages the price and plots it as a line on the chart. In addition, the moving average is the basis for many other technical indicators and is a stock market indicator that can assist in cutting through the chaos of big price fluctuations. It’s important to understand moving essentials as there are many trade situations where a sell or buy signal is confirmed, supported, or triggered by this important technical indicator.
The moving average is one of the most widely and commonly used technical indicators by investors making it important to understand the different types. There are numerous indicators with different traders favoring specific ones depending on what their unique strategy is. Traders utilize technical indicators to understand the momentum of stock price changes.
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