Moving averages are a series of snap shots of stocks' closing prices over a 50- or 200-day period when the market actually ran (or walked... or crawled).
The charts you see on traders' websites that show a bunch of lines going up and down? Those are the moving averages. Look closely and you'll see a line following the closing prices of a stock and another line either above or below that line. If a stock's price is headed up, there might be what traders call a support line under it. This one shows how low the price will drop before bouncing back up. If a stock is heading to tank-ville, there will be a line drawn above the averages. That one shows how far the stock will jump before it's pulled back down.
The idea is that you can use this info to get an idea of how the stock's doing and how it might do in the future.
Of course, trying to predict how stocks will do over the long term is a lousy idea. Even financial types in big jets who are paid to predict how stocks will do are right only about as often as the Psychic Friends Network. Stocks don't always follow averages: when they don't they surge past the resistance or support lines, it's called a break out.
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Finance: What are moving averages?7 Views
Finance a la shmoop... what are moving averages? ooh I need another tissue that [Girl crying]
average I just can't get enough so moving okay yeah yeah that's not at all
what this term is about here's a chart here's a set of trailing averages 50-day
the blue line they're hundred-day the black line and 200-day the green line
there... note that we say trailing average why trailing? well people we lost our
crystal ball yeah Warren we know you took it [Warren Buffett eating dinner]
so averages for normal humans can only be trailing because trailing stockticker
closing prices give us data we can actually use stock averages don't take
future data that we're merely guessing at on their charts... only
real numbers that we can actually point to so here's the 50-day average for [50-day average for coca cola stock]
coca-cola stock KO in 2012 and if we move forward a year and change well here
it's a 50-day average right there looks a little bit different and while the 50
data input elements from its closing price each day vary so the average of
those data points will move and why do moving averages matter well for
fundamental analysts kinds of investors you know the people who care just about [Fundamental analyst people appear]
the cash flow and earnings and margins and revenue growth of companies well
really don't matter but for chartist types of investors that is those who
focus really only about trading trends and shapes and curves and the metrics
behind what patterns of stocks take in the future well, they matter a lot then
in fact the 200-day moving average is generally a kind of Chartist living [Priests in church]
Bible for most Wall Street traders and taking meaning from it is all about
recognizing patterns and then imputing likely future patterns based off of
those shapes for example if you're looking here at the peak of a Head and [Head and shoulders stock price graph]
Shoulders chart, the trailing average of this
say 50-day set here of data points is the line about here but if you move
forward and look at the back half well then the moving average is about here [Moving average lines moves]
and if you consider the entire chart well it's about here and the lines are
there in theory to give color as to what direction the
market or this given stock is heading and yep sometimes it works and sometimes
it doesn't [Man eating dinner with Warren Buffett]
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