What is a moving average line?
A moving average is a line that connects the average of past closing prices.
For example, for a 25-day moving average line, the average of the closing prices for the past 25 days is calculated every day.
The commonly used periods are:
| period | way of seeing |
|---|---|
| 5 day line | short term flow |
| 25th line | Process of about 1 month |
| 75 day line | middle term flow |
| 200 days line | long term flow |
What do we know?
Looking at the moving average line will help you understand the direction of the stock price.
- If the line points upward, it is an upward trend.
- If the line points downward, there is a downward trend
- If the line is flat, your sense of direction is weak.
It is also important to know whether the stock price is above or below the moving average.
How to use it
For beginners, it is sufficient to look at the following three points first.
- Direction of moving average line
- Is the stock price above or below the line?
- Positional relationship between short-term line and long-term line
If the short-term line is above the long-term line, it is likely to be seen as strong, and if it is below, it is likely to be seen as weak.
Points to note
Since moving averages are created from past stock prices, they inevitably react with a delay.
We cannot respond immediately to sudden changes in materials or financial results.
View along with business results and news. Moving averages are useful, but they cannot predict sudden material changes.
Summary
Moving averages are a basic tool for reading stock price trends.
It provides a foundation for understanding trend direction, support/resistance lines, golden crosses and dead crosses.