|
4.13.6Moving Average Trend line
A moving average trend line smoothes out fluctuations in the data to show a pattern or trend more clearly.
A moving average trend line uses a specific number of data points (set by the Period option), averages them, and uses the average value as a point in the trend line. If Period is set to 2, for example, then the average of the first two data points is used as the first point in the moving average trend line. The average of the second and third data points is used as the second point in the trend line and so on.
Example: Price movement of a currency over a specific time period
(4).png)
EXAMPLE OF A MOVING AVERAGE TREND LINE FOR ALCOHOLIC DRINKS
How does moving average trend line compute?
A moving average trend line by using the following equation:
where c and b are constants, and e is the base of the natural logarithm.
Note:
The number of points in a moving average (moving average: a sequence of averages computed from parts of a data series; in a chart, a moving average smooths out the fluctuations in data, thus showing the pattern or trend more clearly). The trend line equals the total number of points in the series divided by the number that you specify for the period.
Guidelines:
It smooths out temporary high and low fluctuations in data as in trading systems.
Area pattern can be a risk for the moving averages. The moving average values lie between high and low fluctuations.
Note:
User needs to specify the moving average period, which is a constant value.
|