Moving Average

The defini�on of ‘Moving Average’ refers the average value of a security’s price over a given period of
�me. It is a widely used indicator in technical analysis that helps smooth out price ac�on by filtering
out the “noise” from random price fluctua�ons. A moving average (MA) is a trend-following or
lagging indicator because it is based on past prices.
There are several uses for moving average (MAs) for people in the trading industry. They are useful
to:
1- measure the momentum of price
2- ascertain the direc�on of the current and future price of security
3- define sec�ons of possible supports and resistances
4- give importance on the direc�on of a trend
5- reduce the ‘noise’ of price and volume which otherwise may create confusion while analyzing
DIFFERENT TYPES OF ‘MOVING AVERAGE’
SIMPLE MOVING AVERAGE (SMA)
It is simply the average price of a security at a given period of �me. Usually, these are calculated using
closing prices. The sum of closing prices for the last ten days divided by ten is the Moving Average of
that security. Naturally, as its name implies, the moving average moves or changes with the price
movement.
Descrip�on
SMA is the easiest moving average to construct. It is simply the average price over the specified
period. The average is called "moving" because it is plo�ed on the chart bar by bar, showing a line
that moves along the chart as the average value changes