Introduction to Moving Averages
What is a moving average, you ask? Well, instead of looking at a jagged chart moving up and down you could choose to smooth out its price movements with a moving average. Therefore, a moving average is derived from the price of a stock over X number of market days.
Moving averages are technical indicators. Thus by definition of technical indicators, it is used to help evaluate the technical movements of a stock in order to predict future movements of the stock.
By averaging out, and therefore smoothing out the movement of a stock price a moving average gives a cleaner view of the overall movement of a stock. The more days used to average out and smooth out a stock chart, the slower that moving average is to react to a stock current price fluctuations.
The next two sections will highlight the two main types of moving averages. One being the simple moving average and the other being the exponential moving average.