Lesson 1: What are Moving Averages
📚 Scenario
Moving averages are essential indicators in trading frameworks, helping traders identify trends and make informed decisions. By calculating the average closing prices over specific periods, traders can gauge the direction and strength of a stock’s movement.
Key Points
- Definition of Moving Average: Calculating the average closing price over a set number of days.
- Simple Moving Average (SMA): Equal weight given to all closing prices in the period.
- Exponential Moving Average (EMA): More weight given to recent closing prices.
- Trend Identification: Using the slope of moving averages to determine bullish or bearish trends.
- Moving Average Crossovers: Signals generated when short-term averages cross above or below long-term averages.
🎥 Video Guide
✍️ Practice Questions
- What is the difference between a Simple Moving Average (SMA) and an Exponential Moving Average (EMA)?
- How can moving averages help in identifying the trend of a stock?
- What does a moving average crossover indicate in trading?
- Why might traders prefer using EMAs over SMAs in volatile markets?
Think about these questions to reinforce your understanding of stock market basics.
Lesson 2: Moving Average on Google Sheets
📚 Scenario
By calculating Simple Moving Averages (SMA), traders can assess the strength and sustainability of market trends. Additionally, moving average crossovers serve as crucial signals for bullish or bearish market movements, enabling traders to make informed decisions based on trend confirmations rather than relying solely on price action.
🎥 Video Guide
✍️ Practice Task
Practice calculating Moving averages for your list of stocks. Modify the time intervals to understand how different data points impact stock analysis.
Lesson 3: Exponential Moving Average
📚 Scenario
Unlike Simple Moving Averages (SMA), EMAs give more weight to recent price data, making them more responsive to new information and quicker to reflect price changes. This responsiveness allows traders to identify and react to trends more effectively, especially in volatile markets.
Key Learnings
- Exponential Moving Average (EMA): Calculates the average price with more weight given to recent data points.
- Coefficient Calculation: Determines the weight of recent prices using the formula 2 / (N + 1), where N is the number of days.
- Trend Identification: EMAs help in identifying the direction and strength of a stock’s trend based on the slope of the average.
🎥 Video Guide
✍️ Practice Task
Practice calculating the EMA for your list of stocks. Download and refer to the google sheet provided for help.