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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.
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