Moving Average

Moving average is a simple measurement for the slope of a trend, as such it is a good indicator for trending markets. It is not a good indicator for sideways markets. The moving average calculation averages prices over a defined period of time. The moving average will change with price. Moving average calculations typically fall into the following categories: simple, exponential, and smoothed.

Simple
Simple moving averages may also be called Arithmetic Moving Averages. Simple moving averages are the most common moving average calculations. A Simple Moving Average is calculated by adding values over a set number of periods and then dividing the sum by the total number of values.

Exponential
Exponential moving averages assign greater weight to the most recent data.

Smoothed
Smoothed moving averages are a simple/exponential hybrid with a longer period. The Smoothed Moving Average gives the recent prices an equal weighting to the historic ones. The calculation does not refer to a fixed period, but rather takes all available data series into account. This is achieved by subtracting yesterday’s Smoothed Moving Average from today’s price. Adding this result to yesterday’s Smoothed Moving Average, results in today’s Moving Average.

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Tags: Sideways Markets, Trending Market