Moving averages provide data analysts and scientists with a basic predictive model. Despite its simplicity, the moving average method is widely used in the technical analysis of financial markets to define a dynamic level of support and resistance for the price of a given security.
Let's consider a time series xt= x(t) and a function f(xt-p, xt-1) that reduces the last p observations into a value or average. The prediction or estimation of the observation at t+1 is defined by the following formula:
Here, f is an average reducing function from the previous p data points.
Simple moving average, a smoothing ...