Short-term averages respond quickly to changes in the price of the underlying, while long-term averages are slow to react.” With a few edits by me, Investopedia defines SMA like this: “A simple moving average (SMA) is an arithmetic average that is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods. Definition: What is a Simple Moving Average (SMA)? Given that background, here’s what I know about moving averages. Please see the Investopedia pages I link to for much more information. That tells me at a glance that the stock price is trending up.īecause I don’t use moving averages a lot, this page isn’t completely thorough. Recently I have found that they are nice because I can look at a bunch of output from Finviz or other sites, and see that the “20 Day SMA” for a stock is +2.8%. An important idea there is that the “floor price” of a stock using a moving average can be used to set a “stop loss” on a stock.īecause I generally follow the Buffett style of investing I don’t use moving averages as a main tool, but I like to know how they work, and I use them as a way of supporting my other research. Moving averages can be good for people who make a lot of trades, and they can also be used to identify “ceiling” and “floor” prices of stocks. I mention this because I’m about to write about moving averages, and moving averages have nothing to do with a Warren Buffett style of investing. Conversely, if you wait and buy that model 11 months later - when the next “new” model is about to come out - you’ll be able to buy the same car for a much lower price. If you buy a new car when it’s first introduced, and the model is very popular, the dealer is going to want a lot of money for it. ![]() You can think of this strategy as being like buying a new car. The theory is that from time to time, a stock will fall out of favor with the stock market, and when its price gets to a certain low point, it becomes a “value” to buy. When you do that, you hold the stock forever.You base your buying decision on the “value” of the stock.Think about buying a stock as though you are going to buy the entire business.In general, I believe in a Warren Buffett style of investing where you: This includes simple moving averages, exponential moving averages, and how to use this data to support buying and selling stocks. This is a reference page of what I know about “moving averages” in stock market investing.
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