4 months ago • 4:29 mins
Trying to guess where the market might be headed next is no easy feat. But with moving averages, you can cut out a lot of short-term price noise and get a much clearer picture of the overall trend in an asset’s price. So let’s see why moving averages are one of the simplest – and most effective – technical indicators around.
As the name suggests, a moving average is a “moving”, or constantly updating, average of the price over a set number of recent investment periods – those can be hours, days, weeks, or even months. Here’s an example of the 200-day simple moving average, or SMA, (blue line) for the S&P 500 (black line). Notice how it’s acted as support for the price (green circles) or resistance (red circles) at different times over the past decade.
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