Definition of the technical indicator Moving Average
Term
Moving Average; Simple Moving Average a.k.a MA
Usage
Technical Indicator, Technical Analysis, Trading Software, Trading Tools
Context
Answers questions: What is a moving average? Define moving average, Explain the technical indicator moving average.
Definition of Moving Average
Moving Average shows the average value of the underlying data, most often the price of a security, for a given time period.
Moving average is considered to be one of the most common Indicators in nearly any technical analysis software available in the market today. It’s a trend following indicator and is calculated like so:
(P1 + P2 + … + Pn)/N
P = price
N = the number of days to use
There exist different types of Moving Averages, where Simple Moving Average is a straight average calculation. Exponential Moving Average and sometimes Weighted Moving Average have come to replace the importance of simple moving average in technical analysis.
The biggest critique against Simple Moving Average as trend indicator is its rough-cut and somewhat crude changes from day to day that comes from moving up when a low-price day is dropped, and moving down when a high-price day is dropped from the series. This may cause an erroneous reflection of the market events.
Exponential Moving Average renders a more smooth transition than its simple counterpart.