Moving average

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Revision as of 16:55, 8 July 2005 by Rhody Trader (Talk | contribs)

A moving average is an average of price, or some other data value, over time. It is referred to as moving because it is recalcultated at each consecutive point in time.


Types of Moving Averages

Simple moving average (SMA)

The unweighted mean of the previous n data points in the time series. For example, a 10-day simple moving average closing price is the mean of the previous 10 days' closing prices.

Weighted moving average (WMA)

The weighted mean of the previous n data points in the time series. The weighting is generally (but not necessarily always) linear. That means a relative weight of 1 is assigned to time period t, with each previous period's value assigned a lower weight on down to a relative weight of 1/n assigned to time period t-n. The WMA is more responsive to recent movements than the SMA.

Exponential moving average (EMA)

An exponentially weighted mean of previous data points. The parameter of an EWMA can be expressed as a proportional percentage. For example, a 10% EMA has each time period assigned a weight that is 90% of the weight assigned to the next more recent time period.