A moving average is a summary measure of price movement which reduces the distortions to a minimum by evening out the fluctuations in share prices. The underlying trend in prices thus clearly detectable when moving averages are used.
Types of Moving Averages
Simple moving average: is easy to construct and is widely used by technical analysts. To construct a moving average, the time span of the average has to be first determined.
Exponential moving average: is similar to a simple moving average, except that more weight is given to the latest data. It is also known as \"Exponentially weighted moving average\" This moving average reacts faster to recent price changes than a simple moving average.
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