MOVING AVERAGES

A moving average (MA) in finance is a stock indicator that helps smooth out the price data over a specified period of time by creating a constantly updated average price. Instead of looking at a candlestick representation of a stock price over time, the MA, offers a smoother, different perspective, which may show up patterns which can’t usually be seen. Moving averages can also indicate where the stock might by over bought or oversold. The overbought & oversold identification is easier seen when comparing two different MA periods, 20 day and 200 day for example. Bollinger bands can indicate overbought and oversold situations. The MA can help filter out the noise from random price movements, and as well as identifying trends, it can confirm reversals. When the price is above the MA line this is an uptrend and below the MA line a downtrend/ trend reversal. The MA can also be considered as an indicator of support and resistance. When the price is above the moving average this can be an indicator to buy, and when it’s under the moving average line this could be time to sell.