Recently I learned that one of the few technical indicators that do have evidence of predictive value about which people agree are moving averages. This is a pretty much very introductory article, as it is for me, learning these things, as for other people who would like to read this article.
So how does it work? The basic idea is very simple. The averages we calculate here are called simple moving averages. There are some other types such as weighted or logarithmic moving averages, but for now, they are out of the scope. We calculate moving average for the past 20 days and 10 days for a stock. Moving average is calculated as a sum over some number of intervals and divided by the number of intervals. Once the averages are calculated, we compare them. In case 10 day moving average is higher than 20 day moving average, we buy stock. In case 10 day moving average goes below 20 day moving average, we sell. And so on. No big deal, but obviously it works.
