The moving average shows the average value of an asset over a certain period of time. As the price changes, the moving average will increase or decrease. The moving average is one of most popular and easy-to-use tools available to the fundamental analyst.
The same elements create a large overview of a series of data and help determine trends, which is very useful in volatile markets. Moving averages also create the foundation and building blocks for other indicators.
Simple Moving Average (SMA): It calculates the average price of an asset over a specific number of periods. In addition, it is possible to create the moving average based on the opening prices, duration of the prices, and closing prices.
SMA = SUM (precios de cierre) / n
*n is the number of periods per day times the number of days used in the moving average
Exponential Moving Average (EMA): In order to reduce the delay of averages from simple movements, many analysts use an exponential moving average.
The EMA reduces the delay by applying more weight to more recent prices than to older prices. The shorter the EMA period, the more weight is applied to the recent prices.
The statistics behind the moving averages is what makes it such a great tool for the markets. The backtesting with these averages are also an important help.
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