A moving average of a share price is simply the average of the share prices of the last so many days.
To work out a five-day moving average, for example, you add up the prices for the last five days and divide by five. Then each day you update it by dropping the earliest price used for the previous day's calculation and adding the latest price.
You can then plot a line of the moving average, which you will see smoothes out share price movements, giving you (hopefully) a clearer view of the price trend thanks to the fact that it sorts the serious moves from the background noise.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
You can use 5, 10, 100, 20 or any other number of days to make your moving average, depending on your aims - the longer a time period you use, the smoother your line will be. Most chartists will look at a few different moving averages at a time (say 20 day and 100 day) when they're looking at charts.
-
Cash ISAs: why it could be your last chance to grab 5% tax-free savingsSavers using a cash ISA could face a double-whammy of interest rate cuts and tax reforms from April. Should you act now?
-
Navigating the Trump tariffsMartin Connaghan and Samantha Fitzpatrick, Co-Managers of Murray International Trust PLC, discuss Donald Trump's tariffs.
