Moving Average (MA)

The moving average is one of the most useful and objective tools available to the technical analyst. Moving averages show the average value of a security’s price over a certain number of time periods. The most commonly used moving averages are the 20, 30, 50, 100, and 200 day averages. Moving averages smooth a data series and make it easier to spot trends and smooth out price and volume fluctuations or noise that can confuse interpretation. It moves because for each calculation, the latest x number of time periods’ data are used. Using the data from prior time periods, a moving average lags the market. An exponentially smoothed moving average (EMA) gives greater weight to the more recent data, in an attempt to reduce the lag. The shorter the time span, the more sensitive the moving average will be to price changes. The longer the time span, the less sensitive or the more smoothed the moving average will be. See also: Simple Moving Average and Exponential Moving Average.

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