Moving averages

Moving averages provide data analysts and scientists with a basic predictive model. Despite its simplicity, the moving average method is widely used in a variety of fields, such as marketing survey, consumer behavior, or sport statistics. Traders use the moving average method to identify different levels of support and resistance for the price of a given security.

Note

An average reducing function

Let's consider the time series x_t = x(t) and function f(x_t-p-1,…, x_t) that reduces the last p observations into a value or average. The estimation of the observation at t is defined by the following formula:

Here, f is an average reducing function from the previous p data points.

The simple moving average

The simple moving average is the simplest form of the moving averages algorithms [3:1]. The simple moving average of period p estimates the value at time t by computing the average value of the previous p observations using the following formula.

Note

The simple moving average

M1: The...