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Options Made Easy: Your Guide to Profitable Trading, Second Edition by Guy Cohen

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Moving Averages

Moving Averages are the most widely known and used technical indicators. They are also the simplest. A Moving Average is simply the average closing price of a period of bars on a price chart. So, on a daily chart, a 40-period moving average is the average of the last 40 days’ prices. Tomorrow’s Moving Average will include what happened today (but not tomorrow), and, similarly, today’s Moving Average includes what happened yesterday (but not today!). Moving Averages are most useful for the way in which they smooth price action and cut out the “noise,” that is, the peculiar bar by bar data that often results in trading whipsaws.

A Moving Average is simply the average closing price of a period of bars on a price chart.

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