11. Moving Averages—Order in the Change
The moving average (MA) is a statistical tool that evens out a set of values. On a stock chart, those values are based on closing prices over a range of sessions. In reviewing a chart for a volatile stock, it often is difficult to determine the general trend of price; with moving averages, it becomes possible to tell not only the direction, but also the level of volatility. A “moving” average is just that: With the close of each new session, the oldest session is dropped off and replaced with the newest session’s close.
With price data smoothing through MA, charting is given a specific structure that is not always available otherwise. The longer the period in the MA, the less responsive it is to change. ...
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