Calculating Moving Average from Close and the Other Methods

Calculating Moving Average from Close

Most people calculate moving averages (or let their software calculate it) from the closing price of each bar. This has a valid reason on daily or weekly charts, because the price at which the market closes on a particular trading day or week has a big meaning.

Of course, like many things in trading, this meaning is partly self-fulfilling. Because everybody else watches it, I should watch it too, as it has a potential to influence future market development.

For Intraday Charts Closing Prices Are Less Significant

On the contrary, when you are using intraday charts and short time frames (for example 3 minute bars), the closing price of a particular bar is not that important. Who cares where the market was exactly at 10:24:00 (as opposed to 10:23:56), or where it “closed” at 10:27:00?

Furthermore, with the improvements in technology and speeding up the internet some people started using so called alternative time frames like tick charts (each bar represents a particular number of trades) or volume charts (each bar represents a particular number of shares or contracts traded). If you use these, the closing price of a particular bar has probably no meaning at all.

Calculating Moving Average from Other Prices

For intraday charts, the high and low of each bar may give you a much more useful information than close. A common approach is calculating a kind of average from high and low (and sometimes also close or even open). This average is then used for calculating the moving average.

In sum, most common methods for calculating moving averages are calculating them from:

Which Method to Choose?

Which one is the best? It depends, like everything, on your own taste, your strategy, and your needs. However, in most markets the selection of one of these methods will most likely not be the most critical factor in your strategy. In most cases the length of moving average period influences the behaviour of the moving average much more than which price is used for its calculation.


Related pages


calculate wacc examplevix future pricesbull put spread vs bull call spreaddelta formula mathprofit loss formulasoption moneynessdollar weighted return calculatorstock quotes yahoo symbolsd calcrsi calculation formulastock momentum formulaguts option strategyhow to measure skewnessvix historicalmacd momentumconstruction companies stockoptions probability calculatorproshares short vix short term futures etfexcel stdev ifhow is dow jones industrial average calculatedblack scholes valuationportfolio var calculationproshares ultra vix short-term futuresdow jones investment calculatorhow many shares in an option contracte-tracscall options profit calculatorhow to calculate a formula in excelexcel natural logarithmwhat is an etn vs etfcalculating skewnessvaluing a call optionmacd emasample variance derivationsec hedge fund filingsmacd definitionrecent 13f filingscalculating sample meanhow to average percentages in excelfischer black and myron scholesexcel cash flow diagramblackscholes formulacalculation formulas for excelcost accounting formulaskurtosis calculatorhow to calculate median on excelmoment skewness and kurtosiswhat is a straddle in optionsdifference between variance and volatilityproshares short vix short-term futures etfsquaring definitiongreeks financepercent variation calculatorequation for sample variancewhat is svxykurtosis and skewness normal distributionmacro hedge fund strategysec 13fmoment skewness and kurtosislong short equity hedge fundsvix putsvix 3x etfgeometric mean advantages and disadvantagescontinuously compounded returnsstd deviation and varianceblack scholes option pricing formuladelta for put optionoptions implied volatility calculatorblack scholes model in excelsquare root multipliermomentum calculatorfutures expiration dateseuro stoxx 50 wikimacd trading strategiesvix options settlementcalculation of skewness and kurtosisstandard deviation multiplicationdividends yield formulaformula sharpe ratio