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Moving averages can be calculated manually or with technology, using either a simple or weighted average. They help investors ignore daily fluctuations and create an expected figure for a stock. Expert opinions or reports can also provide analysis and comparisons.
To calculate a moving average, an individual should first decide which type of moving average is needed, a simple average or a weighted average. Subsequently, the individual can calculate a moving average manually, either with the help of a spreadsheet program or via conclusions drawn from expert opinion. The type used depends on the individual’s mathematical and technological comfort levels.
In the stock market, a price can fluctuate over a specific period of time and a moving average is used to show how and when a stock can fluctuate from this average. The moving average will look at a cost over a specific number of days. For example, if the stock’s 30-day average is needed, the previous 30 days are examined. Because of this, the price of the same stock a week later will be a different figure. Knowing this number helps an investor ignore rare daily price fluctuations and create a regular, expected figure for the stock.
The manual method of determining a simple moving average is less complicated than determining a weighted one. The simple average is what many would consider a smooth average for the specified number of days. For example, if you are looking at a five day period, the sum of the prices for each of the five days would then be divided by 5 to calculate the average. A weighted average gives more weight, or importance, to the most current prices. So in this example, the oldest days will be multiplied by 1 and the newest prices will be multiplied by a higher number, then the sum of all adjusted prices will be divided by the total numbers used to multiply the digits.
These processes can be further streamlined by using available technology, such as a spreadsheet program. To calculate a simple moving average in such a program, the user can enter dates in one column and the corresponding price in another. The program will have a particular formula that can be entered to calculate various types of averages, such as the weighted moving average. If this formula is not known to the user, the program should have a built-in instruction function or may come with an instruction manual.
An even easier option is to read a reputable report from a professional investment firm or ask a financial advisor. With this option, not only moving averages are available, but often analysis as well. An expert opinion or other research might include explanations or comparisons that an average investor might find difficult to obtain independently.
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