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Moving Averages - Simple
Description
A simple,
or arithmetic, moving average is
calculated by adding the closing price
of the security for a number of time
periods (e.g., 12 days) and then
dividing this total by the number of
time periods. The result is the average
price of the security over the time
period.
For
example, to calculate a 21-day moving
average of Geo2 Ltd: First, we would add
up Geo2 Ltd's closing prices for the
preceding 21 days. Next, we would divide
that sum by 21; this would give us the
average price of Geo2 Ltd over the
preceding 21 days. We would plot this
average price on the chart. The
following day (tomorrow) we would do the
same calculations: add up the previous
21 days' closing prices, divide by 21,
and plot the resulting figure on the
chart. |