Moving Average Formula
Moving Averages (MA) are one of the most popular technical analysis tools. It is an indicator that shows the average value of a security's price over a period of time. It is used to eliminate short-term fluctuations in time series and to highlight long-term trends and cycles.
Moving averages may be : - 1. Simple
2. Weighted
3. Exponential
The two most popular types of moving averages are the Simple Moving Average (SMA) and the Exponential Moving Average (EMA).
Simple Averages -------
The most basic is the Simple Moving Averages which takes the Prices from the previous user defined number of periods, sums them up and divides the summation by the number of Periods.
Weighted Averages --------
In order to reduce the lag of the Simple Average, more weight can be assigned to Recent Data and less to Older Data. A weighted 10 day Moving Average assigns a weight of 1 to first Day, 2 to the Second Day and so forth until the most Current Day which is assigned a weight of 10. The 10 weighted values are added together and the sum is divided by the sum of the weights which in this case is 55.
Formula:- ( P1x1 + P2x2 + P3x3 + ……… P9x9 + P10x10) / 55,
Where P10 = Yesterday’s, i.e., the most current Day’s Price
And P1 is the first Day’s, 10 Days back.
Exponential Average -------
A weighted average is an arithmetic weighting whereas an Exponential Average is geometric weighting. As such, it gives much more weightage Current Data than the weighted average. So, it reacts faster to Price changes than the other averages. In today’s computerized environment putting or plotting Exponential Weighted Average gives us no pain.
Formula:- Exponential Moving Average = P today x K + EMA yesterday x ( 1 – K)
When, K = 2 ( N + 1 ), N is number of days in the EMA (e.g., in 13 EMA, n=13)
P today = Price today and EMA testrday = EMA of yesterday.
For computation of EMA value, you can start with the Simple Moving average at the beginning.
To compute 13 days EMA:-
1) You may compute the Simple Moving Average at first for the 13 days,
P1 + P2 + P3 + P4 + P5 + ………… P13 / 13
2) On the 14th day, Multiply Closing Price by K,
3) Multiply previous days M.A. ( as calculated in step 1) by ( 1 – K )
4) Add the two ( 2+ 3 ). The result will be the 13 EMA for the 14th day.
5) Now, the process will be continued and extended with the EMA as obtained.
6) Here, K will be = 2/13+1 = 2 /14 = 1/7
7) 1 – K will be = 1 - 1/7 = 6/7
Drawbacks of Moving Average~~~~~~~~
These are lagging indicators. They summarize Previous Data and plot it on Current Prices so an analyst using only Moving Averages will probably not be able to call Tops and Bottoms in the market. The change in Trend will be seen only after it has happened. So, these are Trend following indicators. They cannot tell us the Trend in advance.
Moving Averages are very useful in trending market. But if no Trend is present in the market, i.e. in sidewise phases, they fail and cannot provide the Analyst any good signal.
Before investing, it is always wise to learn the Basics of Stock Market. You need to have your basics clear. Unless you do….you will be wasting your time and loosing money. You need to be crystal clear of each and every aspect of Investments, stock options, Stock Trading, Company, Shares, Dividend & Types of Shares, Debentures, Securities, Mutual Funds, IPO Futures & Options.
Stock
Stock is an equity investment that represents part ownership in a corporation and entitles you to part of that corporation’s earnings and assets. Common stock gives shareholders voting rights but no guarantee of dividend payments. Preferred stock provides no voting rights but usually guarantees a dividend payment. In the past, shareholders received a paper stock certificate — called a security — verifying the number of shares they owned. Today, share ownership is usually recorded electronically, and the shares are held in street name by your brokerage firm.
Stock market
An institution that facilitates the buying and selling of stocks
A stock market may be a physical place, sometimes known as a stock exchange, where brokers gather to buy and sell stocks and other securities.The term is also used more broadly to include electronic trading that takes place over computer and telephone lines. In fact, in many markets around the world, all stock trading is handled electronically.
What is share?
A share is simply a divided-up unit of the value of a company. If a company is worth £100 million, and there are 50 million shares in issue, then each share is worth £2. As the overall value of the company fluctuates so does the share price.
In simple Words, a share or stock is a document issued by a company, which entitles its holder to be one of the owners of the company. A share is issued by a company or can be purchased from the stock market.
By owning a share you can earn a portion and selling shares you get capital gain. So, your return is the dividend plus the capital gain. However, you also run a risk of making a capital loss if you have sold the share at a price below your buying price.
Quick view on Stocks and Shares ~~~~~
Owning a stock or a share means you are a partial owner of the company, and you get voting rights in certain company issues.
Investments in stocks can generate returns through dividends, bonus share, right issue and capital appreciation of share value.
The 3 basic requirements needed for trading :
· D-MAT Account
· Trading Account
· Bank Account
D-MAT Account----
D-MAT account, short term for dematerialised account is a type of banking account which dematerialize the paper-based physical shares.The idea of dematerialised account is to avoid the need to hold physical shares--the shares are virtually being bought and sold through the demat account and save the fraudlent factor.
Trading Account----
An account similar to a traditional bank account, holding cash and securities, and is administered by an investment dealer. An account held at a financial institution and administered by an investment dealer that the account holder uses to employ a trading strategy rather than a buy-and-hold investment strategy.
Bank Account----
A Bank account is required for carrying out various financial transactions associated with trading of shares. This is where the money on sale of shares will be credited or money for buying shares will be debited from. A normal Savings Account is enough and nothing additional needs to be done with the Bank account.
Once the D-MAT account, Trading account and Bank account are in place, an individual is ready to start trading.
To trade successfully requires a well-defined plan
1. Learn the basics --------- Education
2. Determine a strategy -------- Back-testing, Stock Screens, Charts, Java Charts
3. Identify opportunity --------- Stock Screens, Charts, Java Charts
4. Track stocks ----------- Watch List, Charts, Java Charts
5. Set alerts ---------- Trade Alert
6. Initiate trades
7. Monitor positions -------- Risk Keeper, Charts, Java Charts
If want to get the maximum benefits from the penny stocks.Click Here.
Stock
Stock is an equity investment that represents part ownership in a corporation and entitles you to part of that corporation’s earnings and assets. Common stock gives shareholders voting rights but no guarantee of dividend payments. Preferred stock provides no voting rights but usually guarantees a dividend payment. In the past, shareholders received a paper stock certificate — called a security — verifying the number of shares they owned. Today, share ownership is usually recorded electronically, and the shares are held in street name by your brokerage firm.
Stock market
An institution that facilitates the buying and selling of stocks
A stock market may be a physical place, sometimes known as a stock exchange, where brokers gather to buy and sell stocks and other securities.The term is also used more broadly to include electronic trading that takes place over computer and telephone lines. In fact, in many markets around the world, all stock trading is handled electronically.
What is share?
A share is simply a divided-up unit of the value of a company. If a company is worth £100 million, and there are 50 million shares in issue, then each share is worth £2. As the overall value of the company fluctuates so does the share price.
In simple Words, a share or stock is a document issued by a company, which entitles its holder to be one of the owners of the company. A share is issued by a company or can be purchased from the stock market.
By owning a share you can earn a portion and selling shares you get capital gain. So, your return is the dividend plus the capital gain. However, you also run a risk of making a capital loss if you have sold the share at a price below your buying price.
Quick view on Stocks and Shares ~~~~~
Owning a stock or a share means you are a partial owner of the company, and you get voting rights in certain company issues.
Investments in stocks can generate returns through dividends, bonus share, right issue and capital appreciation of share value.
The 3 basic requirements needed for trading :
· D-MAT Account
· Trading Account
· Bank Account
D-MAT Account----
D-MAT account, short term for dematerialised account is a type of banking account which dematerialize the paper-based physical shares.The idea of dematerialised account is to avoid the need to hold physical shares--the shares are virtually being bought and sold through the demat account and save the fraudlent factor.
Trading Account----
An account similar to a traditional bank account, holding cash and securities, and is administered by an investment dealer. An account held at a financial institution and administered by an investment dealer that the account holder uses to employ a trading strategy rather than a buy-and-hold investment strategy.
Bank Account----
A Bank account is required for carrying out various financial transactions associated with trading of shares. This is where the money on sale of shares will be credited or money for buying shares will be debited from. A normal Savings Account is enough and nothing additional needs to be done with the Bank account.
Once the D-MAT account, Trading account and Bank account are in place, an individual is ready to start trading.
To trade successfully requires a well-defined plan
1. Learn the basics --------- Education
2. Determine a strategy -------- Back-testing, Stock Screens, Charts, Java Charts
3. Identify opportunity --------- Stock Screens, Charts, Java Charts
4. Track stocks ----------- Watch List, Charts, Java Charts
5. Set alerts ---------- Trade Alert
6. Initiate trades
7. Monitor positions -------- Risk Keeper, Charts, Java Charts
If want to get the maximum benefits from the penny stocks.Click Here.
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