Examples of a moving average
There are two main forms of moving average: simple moving average and exponential moving average.
A simple moving average (SMA) is the most basic MA, which is just a straight calculation of the mean price of a set of values over a given time period. If you were to calculate the SMA for a ten-day period, you would take the values of the last ten days and divide the result by ten.
Let’s say that the last ten data points of an asset were: 80, 81, 81, 82, 80, 82, 89, 82, 82 and 83. The moving average would add these figures together and divide by ten, resulting in an average of 82.2.
The second type of MA is an exponential moving average, which gives more importance to recent prices to make the data more responsive to new information.
Most trading platforms will do the calculations for moving averages automatically. With IG, you can access moving averages on our charts, as well as other technical tools like Bollinger bands and RSI. To use them, all you need to do is click the ‘indicators’ icon at the top of the chart and select moving average.