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Technical Indicators
Over the years numerous technical indicators have been developed to describe
stock performance, as well as to predict future price movements. In this section we
introduce five of the most useful indicators and explain how they are calculated.
Moving Average
A stock price/time series can be seen as a representation of a longer-term trend on
which is superimposed on a shorter-term, random fluctuating "noise." In order to
obtain a clean trend signal, shorter-term noises can be filtered out by using moving averages.
The formula for calculating the p-interval moving-average time series is given by
Where,
is the stock price time series, and n is the number of periods.
The moving average defined above assigns equal weight to every point in the
averaging interval; consequently, it may not emphasize the most recent price
behavior. To overcome this, some people use thep-period exponential moving
average:
In reality, it is good enough to run the summation through j=i-2p, to j=i.
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