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Fire Your Stock Analyst!: Analyzing Stocks on Your Own by Harry Domash

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Moving Averages

The moving average (MA) is the average closing price of the stock over a specified period. For instance, the current value of the 200-day moving average is the stock’s average closing price over the past 200 trading days.

There are two types of moving averages: simple (SMA) and exponential (EMA). SMAs give equal weight to each day in the period averaged, while exponential averages put more emphasis on the most recent closing prices. Each version has its advocates, but I’ve found little advantage in using one over the other, and I usually use the SMA.

A stock is considered in an uptrend if it’s above its MA. The distance between the stock price and its moving average indicates the trend strength. That is, the higher a stock is ...

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