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What is meant by the Moving Average Indicator?

  • April 2014
  • Posted By Ninoslav

Unlike the RSI the MA or the moving average purely concentrates on historical data or past trends. For this reason it’s also alternatively known as lagging indicator. There are two basic kinds of moving averages and they are SMA and EMA. SMA refers to simple MA and it is the aggregate average of a stock security over a fixed span of time. The Exponential MA refers to the aggregate average of stock prices which are more dependent on recent fluctuations.

The applications of moving average indicators
If you are interested in the financial market and closely follow stock fluctuations then MA is a tool which you can rely upon. Along with the RSI its one of the most popular financial analyst tools. The main purpose of moving average indicators usage is to identify true trends and filter out market noise. Noise here refers to the unexplained random fluctuations in stock prices which are not repeated and hence are not true indicators of the performance of a particular type of stock.

Apart from their individual use the moving averages tool is also used to calculate MACD or  Moving Average Convergence and Divergence. The support and perceived resistance level of a particular group of stock s determined by the MACD.

Moving average movements-Demystified
This particular financial tool is not dependant on recent stock movements so a longish period of MA calculation would mean that the lag is huge. For example a 200 day MA will have much higher degree of lag than an 20 day Moving averages indicator. Short lag MA is used for quick short term trade play while averages with a longish span are more appropriate for steady long term investors. The reason why you should learn MA is exactly the same as “why you should know about RSI indicators”.


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