Simple Moving Averages
Moving averages smoothen out the price fluctuations of a mutual fund by revealing its average price based on the moving average period(s) specified, the selected time period and the fund's valuation frequency.
Moving Average Periods: Three input fields for moving averages are provided. Inputting any whole number from 1 to 200 will plot the moving averages for the time period specified based on available data. No moving averages are plotted on fund comparison charts.
Valuation Frequency: The selected fund's valuation frequency is a key determinant of the moving average that is displayed on the chart. A large percentage of funds are valued daily, meaning that fund companies supply daily price updates for the funds. In these cases, a 10-period moving average is calculated using closing prices for the last 10 days. For a much smaller number of funds, price updates from the fund companies occur weekly or monthly. For these funds, a 10-period moving average is calculated using closing prices for the last 10 months.
Selected Time Period: Selecting a time period of inception (monthly) or 2-years (monthly) or longer will result in all moving averages being plotted with monthly data.
Moving averages are reactive, as they are based on the historical price action of the fund. If a fund is trading above its 50-period moving average, then investors are more bullish (positive) about that fund now than they have been, on average, during the last 50 periods. Similarly, if the fund is trading below its 50-period moving average, then investors are more bearish (negative) about that fund now than they have been, on average, during the last 50 periods.
Intersection points are also important when viewing moving averages. If a fund crosses its 50-period moving average trending downward, for example, this could be interpreted as a signal to sell. Similarly, if the fund crosses its 50-period moving average trending upward, this could be interpreted as a signal to buy.
Ten-day and 20-day moving averages are considered useful for pinpointing very short-term price trends. Fifty-day averages are considered useful for showing intermediate-term price trends. And 100-day and 200-day moving averages are considered useful for interpreting longer-term price trends.
Simple Moving Average (SMA) Calculation: The default SMA is simply the average price of the fund for the past 50 periods (days/months, based on the selected time frame and valuation frequency) divided by 50, plotted on a chart. The SMA calculation is as follows: SMA = Sum of the last n trading periods / n