![]() Second Day of 3 Period SMA: (6 + 7 + 8) / 3 = 7 CALCULATIONAn example of a 3 period SMA Sum of Period Values / Number of Periodsįirst Day of 3 Period SMA: (5 + 6 + 7) / 3 = 6 ![]() ![]() As each new day ends, the oldest data point is dropped and the newest one is added to the beginning. This means that each day in the data set has equal importance and is weighted equally. Simple Moving Average is an unweighted Moving Average. They typically differ in the way that different data points are weighted or given significance. However, there are a few different types of moving averages. Moving Averages visualize the average price of a financial instrument over a specified period of time. Most notable are the Simple Moving Average (SMA), the Exponential Moving Average (EMA) and the Weighted Moving Average (WMA). There are a few different types of Moving Averages which all take the same basic premise and add a variation. In fact, Moving Averages form the basis of several other well-known technical analysis tools such as Bollinger Bands and the MACD. Because a Moving Average is a lagging indicator and reacts to events that have already happened, it is not used as a predictive indicator but rather an interpretive one, used for confirmations and analysis. Noise is made up of fluctuations of both price and volume. Essentially, Moving Averages smooth out the “noise” when trying to interpret charts. A Moving Average is a good way to gauge momentum as well as to confirm trends, and define areas of support and resistance. Moving Average (MA) is a price based, lagging (or reactive) indicator that displays the average price of a security over a set period of time.
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