Moving averages are one of the oldest and most popular technical analysis tools, particularly amongst smaller investors.
A simple moving average is calculated by adding together the closing prices of a share (or index) over a certain number of time periods and then dividing the sum by the number of periods involved.
So, for example, the seven day average for a share price would be calculated by taking seven days worth of data, adding them together and dividing by seven.
| Day 1 | Day 2 | Day 3 | Day 4 | Day 5 | Day 6 | Day 7 |
| 272 | 280 | 285 | 285 | 278 | 270 | 262 |
The total of the share prices is 1932. Divide 1932 by 7 and you get 276. That's the average price over the 7 days.
But a simple average by itself doesn't tell you enough about the general trend of the share price. For that you need a moving average.
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