![]() ![]() ![]() Since the time frame of the chart is daily, these are 20- and 100-day averages. The following chart shows a 20-period and 100-period moving average applied to it. Moving averages often use closing prices for whatever time frame is being used (1-minute, hourly, daily, or weekly chart), but the open, high, low, or average of these periods could also be used to generate the data points needed for the moving average. These values are connected on a chart to form a continuous line like the examples below. If it was a 100-period moving average, we would need 100 closing prices before we could create the first average. Note how the simple moving average only uses the last 5 values, since this is a 5-period moving average. How a Moving Average is ConstructedĪ simple moving average is calculated by adding up the closing prices over a number of periods, and then dividing the total by the number of periods used.Ī period can be any time frame, such as 1-minute candles or daily candles/periods.Īssume a stock had the following closing prices and someone wanted to know the 5-period moving average: Closing Price Popular moving averages types include simple (SMA), exponential (EMA), and weighted moving averages (WMA).Īverages over 10 periods, 20/21, 50, 100, and 200 periods tend to be popular choices among traders. This article looks at ways moving averages are used and their benefits and drawbacks.Ī moving average is plotted on the chart and shows the average price of the asset over a given period. ![]() Like any tool, it is how it is used that determines its usefulness. Moving averages are a tool used by traders and investors for making trading decisions and analyzing price charts. ![]()
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