What is a Moving Average? b Indicator that shows the average value of a security’s price over a period of time. b Used to produce buy and sell signals for stock trading in a smoothed fashion.

The merit to a moving average is that you will always be on the “right” side of the market; prices cannot rise very much without the price rising above its average. The disadvantage is that you will always buy and sell late. If the trend doesn’t last for a significant period of time, typically twice the length of the moving average, you will lose money.

When the stock moves upward across the moving average value, a buy signal is given. When the stock moves downward across the moving average value, a sell signal is given.

Different Kinds of Moving Averages b Simple Moving Average b Exponential Moving Average

Simple Moving Average b Changes in the upward or downward trend of the stock being measured are identified by the stock price or index crossing over its moving average, rather than a change in direction of the moving average. b A disadvantage is that it will allow an extreme high or low to distort the true value of the stock, possibly giving false signals.

Calculation of Simple Moving Average

Exponential Moving Average b Weights recent closing prices more heavily than earlier closing prices b Many market technicians consider this method to be more accurate indicator than simple moving average.

Calculation of Exponential Moving Average (Last MA value *(1-2/L+1))+(NP*2/L+1) MA=Moving Average L=Length of Moving Average NP=Most Recent Closing Price of Stock Formula for converting time periods to percentages 2/(time periods +1)

b Trend Moving Average b Very ST 5-13 days b Short term days b Minor Intermediate days b Intermediate days b Long term days