Friday 02 May 2008
let’s define the terms. A 40-week average is the sum of the past 40 weeks’ closing prices divided by 40.
Other averages (10-week, 200-day, etc.) are constructed similarly. When this
exercise is repeated week after week, this average will “move” and becomes a
“moving average.”
In the olden days before computers, charting moving averages was a tedious
task, but today any one of these averages could be accessed instantly on chart
services such as Globeinvestor.com or GlobeinvestorGold.com.
The above was the mathematical definition. My practical definition is that the
average illustrates the rate at which money is flowing in or out of a stock. When
buyers want to own the stock and are willing to pay more for this security (bid up
the price), the average will rise as a consequence.
The opposite is also true: when there are more anxious sellers who would sell at
any price, the 40-week moving average will fall. Ron Meisels
BBC
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