Active Trading

Finance a la shmoop... what are moving averages? ooh I need another tissue that [Girl crying]

average I just can't get enough so moving okay yeah yeah that's not at all

what this term is about here's a chart here's a set of trailing averages 50-day

the blue line they're hundred-day the black line and 200-day the green line

there... note that we say trailing average why trailing? well people we lost our

crystal ball yeah Warren we know you took it [Warren Buffett eating dinner]

so averages for normal humans can only be trailing because trailing stockticker

closing prices give us data we can actually use stock averages don't take

future data that we're merely guessing at on their charts... only

real numbers that we can actually point to so here's the 50-day average for [50-day average for coca cola stock]

coca-cola stock KO in 2012 and if we move forward a year and change well here

it's a 50-day average right there looks a little bit different and while the 50

data input elements from its closing price each day vary so the average of

those data points will move and why do moving averages matter well for

fundamental analysts kinds of investors you know the people who care just about [Fundamental analyst people appear]

the cash flow and earnings and margins and revenue growth of companies well

really don't matter but for chartist types of investors that is those who

focus really only about trading trends and shapes and curves and the metrics

behind what patterns of stocks take in the future well, they matter a lot then

in fact the 200-day moving average is generally a kind of Chartist living [Priests in church]

Bible for most Wall Street traders and taking meaning from it is all about

recognizing patterns and then imputing likely future patterns based off of

those shapes for example if you're looking here at the peak of a Head and [Head and shoulders stock price graph]

Shoulders chart, the trailing average of this

say 50-day set here of data points is the line about here but if you move

forward and look at the back half well then the moving average is about here [Moving average lines moves]

and if you consider the entire chart well it's about here and the lines are

there in theory to give color as to what direction the

market or this given stock is heading and yep sometimes it works and sometimes

it doesn't [Man eating dinner with Warren Buffett]