WHAT IS A MOVING AVERAGE?
And how is it vital to my success in the market?
A moving average is the average price of a stock over a set period of time.
There are a few different types of moving averages, each with its own calculation and justification for use.
Having explored each type, which one you choose really comes down to:
- Understanding the general concept
- Personal preference based on system fit*
The KBWS 10 Stock Commandments (Rule #7) is Know What They Will Pay.
Let’s put that into perspective.
The Oxford Dictionary defines law of averages as the principle that supposes most future events are likely to balance any past deviation from a presumed average.
Think of a single moving average as a psychological “home base” for price over a specified chart timeframe/interval.
Millions of traders use at least one moving average as a technical indicator. Some may use as many as 10!
In spite of this, or maybe even because of it, many people also consider moving averages a type of “self-fulfilling prophecy.”
Let me ask you.
If you know a prophecy will fulfill about 80% of the time, would you at least entertain the message?
*system fit is an advanced concept covered and considered during individual style/plan development discussion
