Moving averages provide data analysts and scientists with a basic predictive model. Despite its simplicity, the moving average method is widely used in a variety of fields, such as marketing survey, consumer behavior, or sport statistics. Traders use the moving average method to identify different levels of support and resistance for the price of a given security.
An average reducing function
Let's consider the time series xt = x(t) and function f(xt-p-1,…, xt) that reduces the last p observations into a value or average. The estimation of the observation at t is defined by the following formula:
Here, f is an average reducing ...