Saturday, August 14, 2010
When talking about the stock market, we often use a simple average, like any Index, to quickly understand the big picture. But the Index is not a perfect representation because it's usually made of only a limited number of large stocks.
When looking at an individual stock, we can use a similar idea, a moving average, to see the bigger picture.
Is this stock trending higher? Or lower?
Many argue that day-to-day price fluctuations are completely random, and longer periods are required for trends to emerge. If we could smooth the price fluctuations, it might help us see the emerging trend.
However, the market sometimes offers a hint. A moving average reveals the general direction and strength of a stock's price trend over a given period.
When properly used and understood, a moving average is a very powerful tool. It's not complicated, but you should understand how a moving average is created. It will help you understand why you might choose one moving average over another.
It will also help you choose a reasonable time frame to match your investing style.
Understanding Stock Moving Average
Stock Analysis|Stock Gyan|