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Technical analysis II

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680

1. Average share prices

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 1Day 2Day 3Day 4Day 5Day 6Day 7
272280285285278270262

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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