Mobile Averages

Indicators define themselves as the result of mathematical calculus that starting from the data of prices and volumes, allows us to obtain a signal to anticipate the future changes in the prices. The mobile averages fall inside the previous definition and are one of the oldest tools and most popular tools of the technical analysis. Given that in the analysis of the graphic prices in a direct way can have very big fluctuations to be interpreted correctly, the technique of softening them through the calculus of average mobiles has been developed. This way the distortions are reduced down to the minimum. There are three types of mobile averages which are simple, mediated, and exponential. In this case we will take on in an explanatory way the concept of only the average simple mobile, which at the same time is the one that is used the most. The average simple mobile is defined like the average price of a stock for a determined period of days. This calculus is done successively adding some new and recent data and eliminating the first from the group of previous data for each period of x days. If this is placed into a graph the result of the calculus would turn out to be a softened curve. In practical terms, this indicator represents the consensus of the expectations of the public. If the price of the stock crosses above the average mobile, it means that the actual expectations are above the average expectations of the last twenty five days for example, which will be interpreted as if the public has started their cycle of euphoria to the rise of this stock. On the contrary if the price falls under the average mobile, it means the actual expectations are under the average expectations of the last twenty five days for example, which will be interpreted as if the public has started their sales cycle in a stampede. According to what was said before, the classic interpretations will be to buy when the price crosses above its average mobile and sell then it crosses it under. The x amount of days can be optimized to maximize the profits in the cycles of each stock in particular.