Using Moving Averages to Guide Investment Decisions
Moving averages can help distinguish between meaningful price movements and random fluctuations.
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What moving averages are and why investors use them to smooth noise and highlight underlying trends
How to choose periods, price inputs and types
How to interpret trends and crossovers and integrate with broader analysis
Open any stock chart and you’ll often see them—smooth lines weaving through the jagged price movements like ribbons through broken glass. These are moving averages, perhaps the most widely used tool in all of investing. From day traders to pension fund managers, nearly everyone watches these mathematical constructs, which help reveal hidden order amid the market’s apparent chaos.
But what exactly are moving averages?