Tackle Today: How to Make a Moving Average | Tackle Trading

Moving averages started as a simple indicator for measuring trends. Over time, traders have experimented with a dozen different ways of slicing and dicing the data (ever heard of a displaced exponential moving average?), but we find little value in trying to improve on perfection.

Let’s start with the “average” piece first. Suppose you’re trying to calculate the average price for the past ten trading sessions. Add up the closing price for each of the past ten sessions, and then divide by ten. Suppose this is your data set:

3,4,5,5,6,5,7,6,6,8

Add them up, divide by ten, and you get 5.5.

That is the simple average. Note how each data point had equal weight in the calculation. Yesterday’s close had the same impact as the close of ten days prior.

Now, what of the “moving” part of a moving average?

It refers to the fact that the average is recalculated to consider the most recent day’s close. And, as you add a new data point, an old one drops off. Suppose the above stock closes at 9 on the very next day. We would recalculate the 10-day moving average. But now the 3 drops off because it was eleven days ago.

4,5,5,6,5,7,6,6,8,9

Recalculating the average yields 6.1.

If we plotted the new reading of the 10-day average, it would move from 5.5 to 6.1. Over time, the average will climb or fall as a reflection of the price’s trend.

#TeamTackle

Chart of the Day SPY Daily Chart

Here is a chart example of the S&P 500 ETF with 20-day, 50-day, and 200-day simple moving averages. They are all rising to signal buyers control the short-term, intermediate-term, and long-term market trends.

Video of the day Trading Basics: Moving Averages

Coach Tim at Tackle Trading teaches how to use Moving Averages. Enjoy!

Legal Disclaimer

Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.

All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.

Originally published at https://tackletrading.com on December 30, 2020.

Learn. Trade. Connect. Succeed. tackletrading.com