How are Moving Averages calculated?
Think of Moving Averages in the convention sense. Moving Averages have a tendency of smoothing-out the ups and downs in fluctuating data. Lets look at an example for the ABC Stock: Friday’s Date Weekly Closing Price of ABC Stock 5 week Moving Average Jan 7 $20.00 – Jan 14 $22.00 – Jan 21 $22.00 – Jan 28 $21.00 – Feb 4 $24.00 $21.80 Feb 11 $27.00 $23.20 In the table above, the average for the 5 week period ending February 4, is $21.80 (that is, the average of $20, $22, $22, $21 and $24 = $21.80). The average for the 5 week period ending February 11, is $23.20 (that is, the average of $22, $22, $21, $24 and $27 = $23.20). It can be said that the 5 week average for ABC moved from $21.80 to $23.20 from February 4 to February 11. Thus the term, Moving Averages.
