This implies now the ‘new’ latest 5 days would be 22 nd, 23 rd, 24 th, 25 th and 28 th. 28 th July (26 th and 27 th were Saturday and Sunday respectively) we have a new data point. Hence the average closing price of Marico over the last 5 trading sessions is 242.5 13.1 – The ‘moving’ average (also called the simple moving average)Ĭonsider a situation where you want to calculate the average closing price of Marico Limited for the latest 5 days. Hence the average closing price of ITC over the last 5 trading sessions is 343.95. The last 5-day average close would be calculated as follows: Date Therefore the average is just an estimate, and one cannot expect it to be accurate.Įxtending the concept to stocks, here are the closing prices of ITC Limited for the last 5 trading sessions. Likewise, person D drank just 3 bottles of beverage, which is way below the average of 5.8 bottles. For example, Person E drank 8 bottles of beverage, which is way above the average of 5.8 bottles. Obviously, there would be few of them who had consumed above and below the average. So, the average, in this case, tells us roughly how many bottles each person had consumed. He can quickly get a sense of ‘roughly’ how many bottles each of them consumed by dividing by. Assume the final count to be something like this: Sl NoĪssume a 6 th person walks in to find out 29 bottles of beverages lying around them. The sun is so bright and nice that each one of them ends up drinking several bottles of the beverage. Before we learn moving averages, let us have a quick recap on how averages are calculated.Īssume 5 people are sitting on a nice sunny beach enjoying a nice chilled bottled beverage. Moving averages are trend indicators and are frequently used due to their simplicity and effectiveness. We have all learnt about averages in school, moving average is just an extension of that.
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