The moving average MA is a technical analysis method based on the average cost concept of Dow Jones and the principle of moving average in statistics. It connects the average value of stock prices over a period of time into a curve to show the historical fluctuation of stock prices and then reflect the future development trend of stock prices. It is a visual expression of Dow's theory.
The "average" in the moving average refers to the arithmetic average of the closing price in the last N days; "Move" means that we always use the closing price data of the last N days when calculating.
The calculation formula of moving average is:
MA=(C1+C2+C3+…Cn)/N
C stands for daily closing price
N stands for moving average period
The moving average is divided into short-term periods, such as 5 days and 10 days; Medium term, such as 30 days, 60 days; Long term, such as 120 days, 250 days.
The nature of moving average has the following five points:
1. Trend : The MA curve will generally maintain the same direction as the trend, which can eliminate the fluctuations of stock prices in this process.
2. Hysteresis When the original trend of the stock price reverses, due to the trend tracking characteristics of MA, its action is often too slow, and the turning speed lags behind the general trend, which is also a great weakness of MA.
5. Support line and pressure line characteristics The moving average plays a role of support line and pressure line in the stock price trend because of its tendency, hysteresis, stability and the ability to help rise and fall.
Pay attention to the following two points when encountering the moving average:
1. At the beginning of the rising market, the short-term moving average breaks through the medium and long-term moving average from bottom to top. The cross formed is called gold cross, which is a reference buying signal.
2. At the beginning of the decline, the short-term moving average falls below the medium and long-term moving average from top to bottom. The cross formed is called death cross, which is a reference selling signal.
