ShmoopTube

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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recognizing patterns and then imputing likely future patterns based off of

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

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Shoulders chart, the trailing average of this

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

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

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

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there in theory to give color as to what direction the

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

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

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