Simple moving average
A simple moving average will simply take the sum of the time series variable for the last k periods and then will divide it by the number of periods. In this sense, it is identical to the calculation for the mean. However, what makes it different from a simple mean is the following:
- The average will shift for every additional time period. Moving averages are backward-looking, and every time a time period shifts, so will the average. That is why they are called moving. Moving averages are sometimes called rolling averages.
- The look backwards period can shift. That is the second characteristic of a moving average. A 10-period moving average will take the average of the last 10 data elements, while a 20-period moving average will take the sum of the last 20 data points, and then divide by 20.
Computing the SMA using a function
To compute a rolling five-period moving average for our data, we will use the simple moving average (SMA) function from the TTR package, and then display...
