Sunday, November 24, 2013
Moving Averages: What Are They?
Moving Averages are technical tools designed to measure the momentum and direction of a trend. The idea behind their creation is simple. Price action is thought to fluctuate around the average value over a period of time, and we can expect to be able to the represent the market's momentum by calculating if the current prices are above or below the market's average value. But since the total length of the time period that must be included in the calculation of the average is too large (are we going to begin in 1980, or the year 2000 while computing our time series?), we pick the period arbitrarily, and update the average as time progresses.