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Chapter 1: The Stock Market

Chapter 1: The Stock Market. 1.4 Simple Moving Averages. How can stock data be smoothed?. What factors might contribute to the fluctuation of stock market prices?. How can stock data be smoothed?.

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Chapter 1: The Stock Market

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  1. Chapter 1: The Stock Market 1.4 Simple Moving Averages

  2. How can stock data be smoothed? What factors might contribute to the fluctuation of stock market prices?

  3. How can stock data be smoothed? • Smoothing techniques are statistical tools that allow an investor to reduce the impact of price fluctuations and to focus on patterns and trends • An example of this is known as simple moving averages (SMA). • Simple moving averages are calculated by determining the arithmetic average (mean) closing price over a given period of time • Moving averages are known as lagging indicators because they use past data

  4. Graph over 30 trading days

  5. Example 1 • The closing prices for 10 consecutive trading days for a particular stock are shown. Calculate the 5-day SMA and plot both the closing prices and the averages on a graph.

  6. Simple Moving Averages Using the Subtraction and Addition Method To find 3 day moving average To use the previous 3 day moving average

  7. Example 2 • Use the subtraction and addition method to determine the 4-day SMA for the following closing prices. $121, $122, $120, $119, $124, $128, $126 • What would the eighth trading day’s closing price have to be so that the next moving average remains the same at $124.25?

  8. Graph Simple Moving Average Using a Spreadsheet

  9. Example 3 • Use a spreadsheet to calculate the 5-day SMA of the closing prices for 10 consecutive trading days. • Add column D to the spreadsheet to calculate the 3-day SMA. In what cell do you start? What formula do you use?

  10. Crossovers • Graphs with smaller time intervals are called fast moving averages • Graphs with larger time intervals are called slow moving averages • A crossover occurs when a one-time interval moving average graph overtakes (rises above) another • Consider buying when fast moving average graph overtakes slow moving average graph • Consider selling when the fast moving average graph falls below the slow moving average graph

  11. Example 4 • The graph shows the closing prices for 30 consecutive trading days. It also charts the 7-day and 21-day simple moving averages. What signal might the graphs give an investor?

  12. Ch 1 Asnmt 4 Pg27 #3-15 odd

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