Technical Analysis - The Moving Average

The Moving Average shows the average value of a security's price over a period of time. To find the 50-day MA,  you would add up the closing prices (but not always - we'll explain later) from the past 50 days and divide them by 50. Because prices are constantly changing, the moving average will move as well.

The most commonly used moving averages are of 20, 30, 50, 100 and 200 days. Each moving average provides a different interpretation on how the stock will perform –

The longer the time span, the less sensitive the moving average will be to daily price changes. Moving averages are used to emphasize the direction of a trend and smooth out price and volume fluctuations.

Here is a visual example using the stock price of AT&T:


Click To Enlarge
This chart was supplied by Barchart.com

Notice that back in September the stock price dropped well below its 50-day average (the green line). There has been a steady downward trend since then and no really strong divergence until the end of December when it rose above its 50-day average and continued to rise for several weeks.


 
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