Online Trading Blog

Moving average is a common technical analysis tool which provides a somewhat smooth graph about the price trend of a stock. They are average value for a specified time period, commonly for 50 days. In a classical 50 day moving average the opening or closing price of a stock for 50 days are added and then divided by 50. Then after/on on each trading day the days value are inserted to the average and the oldest ones are deleted, making the graph lengthier with days.

Moving averages are of 4 types as simple or arithmetic, exponential or weighted, smoothed and linear weighted. Each average differs from another in the weight provided to the new days’ data. Simple moving average (SMA) treats all data with same value, but linear weighted (LWMA) and exponential moving average (EMA) provide increased values to newer information.

Moving averages are simple yet most used type of technical analysis tools, useful to figure out support and resistance levels. The trading systems following moving averages generates alerts and triggers each time the stock price cross a moving average. The using of the moving average type depends on your trading strategy, SMA is more suitable for long term traders and EMA is more suitable for short term traders.

This information is provided by NobleTrading.com, a worldwide brokerage firm, offering direct access services for online stocks trading, options trading, futures trading, commodities trading and forex trading on a variety of trading software platform.