The ABCs of Charts, Part 2

Moving Averages

We kick off the second part of TSC's chart primer with a look at moving averages -- over on the top right of the BigCharts page under "More Options." Moving averages are the hearty dinner roll of technical analysis. They come in several flavors, with BigCharts giving you the option of the "simple" or "exponential" variety. Both of these choices smooth the jagged stock graph like a slice of Velveeta on a bumpy head of broccoli.

A moving average accomplishes this feat by plotting the average price for a specified number of previous days on the chart (you choose -- the longer the time period, the smoother the line). In other words, any given point on, say, a 90-day MA line indicates the average stock price over the last three months. The only difference between the two types of averages is that the exponential calculation places a heavier numerical weight on the most recent data.

Legend has it that the moving average was popularized during World War II when British radar operators used the mathematical construct to predict the intended target of German bombers during their evasive maneuvers over the English countryside. You can use the same technique to see through daily market fibrillations and visualize general stock trends. ...