Moving Averages can help traders to measure the direction of the trend. Most of the time technical analysts are likely to use 10 and 50-day moving averages. It focuses on the average price which is set based on a predefined time range. If you want to calculate the moving average of a trend, then you need to keep track the historical price.
How to Calculate a Moving Average?
It is very simple to calculate the Moving Average. Let say you want 10 day Moving Average, then you just simply add all 10 days prices, and divide the sum by 10 (length of day).
The stock prices of Genting Singapore PLC for past 10 days are as below:
2.18, 2.20, 2.17, 2.10, 2.07, 2.07, 2.07, 2.04, 1.98, 2.00
Calculation for (10-day MA) = (2.18, 2.20, 2.17, 2.10, 2.07, 2.07, 2.07, 2.04, 1.98, 2.00)/10 = 2.08.
If the trader wishes to calculate a 50-day MA, then he just need get the set of prices for last 50 days to compute the result.
Highlighted in the chart above shown the difference between long and short term moving averages. In this scenario we look at the 10-day, 20-day and 50-day averages.
So, we are able to see 3 moving average overlays. The first line, which red in colour is a 10-day moving average, the green line is 20-day MA and the brown trend line is a 50-day MA. Also, you can see that the difference in time frame gives us the short term and long term view of the trend.
With this system, it can help you to set the entry or exit price more accurately. The most important thing is you can have more responsive to market movements and direction. This subsequently can earn you some profits easily. I will share with you more into details in coming articles. Stay tuned…