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Simple Moving Average
Description
A simple, or arithmetic, moving average is calculated by adding the
closing price of the security for a number of time periods (e.g., 12
days) and then dividing this total by the number of time periods.
The result is the average price of the security over the time
period.
For example, to calculate a 21-day moving average of Geo2 Ltd:
First, we would add up Geo2 Ltd's closing prices for the preceding
21 days. Next, we would divide that sum by 21; this would give us
the average price of Geo2 Ltd over the preceding 21 days. We would
plot this average price on the chart. The following day (tomorrow)
we would do the same calculations: add up the previous 21 days'
closing prices, divide by 21, and plot the resulting figure on the
chart.
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