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Financial Glossary
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> "Moving average" Definition |
 Moving average
A lagging indicator of price action that replaces the oldest price with the most recent price
Used in charts and technical analysis, the average of security or commodity prices constructed in a period as short as a few days or as long as several years and showing trends for the latest interval. As each new variable is included in calculating the average, the last variable of the series is deleted.
Moving averages are one of the oldest and most popular of technical analysis tools. A simple moving average is calculated by adding together the closing prices of a financial instrument over a certain number of days and then dividing the sum by the number of days involved. So, for example, the seven day average for a share price would be calculated by taking seven days worth of data, adding them together and dividing by seven.To calculate the *moving* average:Start by taking the first seven days worth of data and calculating the average value. This is your first point on the moving average chart.Then add the prices for Days 2-8 together and divide by 7. This is the second point on your moving average chart. Continue doing this for Days 3-9, 4-10 and so on, each time plotting the average on the chart. You now have a moving average chart.There are lots of ways of interpreting moving averages. The most basic is to treat a change of direction in the moving average as a signal to buy or sell, so if the moving average has been consistently rising and then it falls, that is a signal to sell.The classical interpretation, used by most technical analysts, is to compare the moving average with the price of the underlying share and to plot them both on the same graph. Before the share price rises above its moving average, buy the share; when it falls below its moving average, sell the share. That is putting it in extremely simple terms, and for a more sophisticated understanding, read one of the many books on the subject. An analyst would normally also consider other types of indicator before making a decision.
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Glossary 
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Dictionary
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Moving average - A lagging indicator of price action that replaces the oldest price with the most recent price
Used in charts and technical analysis, the average of security or commodity prices constructed in a period as short as a few days or as long as several years and showing trends for the latest interval. As each new variable is included in calculating the average, the last variable of the series is deleted.
Moving averages are one of the oldest and most popular of technical analysis tools. A simple moving average is calculated by adding together the closing prices of a financial instrument over a certain number of days and then dividing the sum by the number of days involved. So, for example, the seven day average for a share price would be calculated by taking seven days worth of data, adding them together and dividing by seven.To calculate the *moving* average:Start by taking the first seven days worth of data and calculating the average value. This is your first point on the moving average chart.Then add the prices for Days 2-8 together and divide by 7. This is the second point on your moving average chart. Continue doing this for Days 3-9, 4-10 and so on, each time plotting the average on the chart. You now have a moving average chart.There are lots of ways of interpreting moving averages. The most basic is to treat a change of direction in the moving average as a signal to buy or sell, so if the moving average has been consistently rising and then it falls, that is a signal to sell.The classical interpretation, used by most technical analysts, is to compare the moving average with the price of the underlying share and to plot them both on the same graph. Before the share price rises above its moving average, buy the share; when it falls below its moving average, sell the share. That is putting it in extremely simple terms, and for a more sophisticated understanding, read one of the many books on the subject. An analyst would normally also consider other types of indicator before making a decision.
Moving average : a lagging indicator of price action that replaces the oldest price with the most recent price
used in charts and technical analysis, the average of security or commodity prices constructed in a period as short as a few days or as long as several years and showing trends for the latest interval. as each new variable is included in calculating the average, the last variable of the series is deleted.
moving averages are one of the oldest and most popular of technical analysis tools. a simple moving average is calculated by adding together the closing prices of a financial instrument over a certain number of days and then dividing the sum by the number of days involved. so, for example, the seven day average for a share price would be calculated by taking seven days worth of data, adding them together and dividing by seven.to calculate the *moving* average:start by taking the first seven days worth of data and calculating the average value. this is your first point on the moving average chart.then add the prices for days 2-8 together and divide by 7. this is the second point on your moving average chart. continue doing this for days 3-9, 4-10 and so on, each time plotting the average on the chart. you now have a moving average chart.there are lots of ways of interpreting moving averages. the most basic is to treat a change of direction in the moving average as a signal to buy or sell, so if the moving average has been consistently rising and then it falls, that is a signal to sell.the classical interpretation, used by most technical analysts, is to compare the moving average with the price of the underlying share and to plot them both on the same graph. before the share price rises above its moving average, buy the share; when it falls below its moving average, sell the share. that is putting it in extremely simple terms, and for a more sophisticated understanding, read one of the many books on the subject. an analyst would normally also consider other types of indicator before making a decision.
