This may be a very basic question, but if this is a 10 period SMA, then why does it cover more than 10 periods? I understand it’s the average of the past 10 periods, but what exactly does that mean complared to, say, a 50 SMA?
The way the software draws the line of the MA make sit look like its a continuous smooth line. In fact, its a series of dots. The level of each dot is calculated by the close of the last 10 bars: the dot would print in line with the centre of the last candlestick. To make it easier to see, the software joins the dots with a line.
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So is there a dot on every candlestick? And is each dot an average of the previous 10 candlesticks’ closing price?
The dot is not visible because they have all been joined together by a smoothed curving line which is drawn by the software. The position of the most recent dot is the very end of the MA line.
The 10-period moving average calculates a rolling average.
For example, a 10-day SMA calculates the previous 10 days and as each new day arrives, the MA rolls its calculations forward.
Here’s a visual explanation:
- Pretend each box contains a closing price.
- Each row represents 10 days (or periods) of closing prices.
- Add all the prices up in a row and average them.
So for the purple row, that average would be the first value of the MA.
Then for the blue row, that average would be the second value of the MA.
Notice how the first box of the purple box is NOT included?
The “lookback window” of 10 days has rolled forward.
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Understood. My question is how does this information translate to the peaks and valleys that follow the price movements of the candlesticks that we see on a chart? Where do the points lie, how does the line adjust, etc.
The 10MA as it is now is calculated using the closing prices of the last 10 candles. Its a rolling average, so as a new candle closes, its closing price is added to the 9 before it and the average is the value of the MA where it is now. The closing price of the candle before the last 10 is no longer counted in calculating the average.
If the last 1000 candles had a closing value of 45, the MA would be 45, since the average of the last 10 would be 45. If we now get a new candle which has a value of 90, the MA is going to rise because the average is now the average of the last candle which was 90 plus the nine candles before it which were 45 - its going to be 49.5.
Likewise, if the last candle had a value of only 12, the MA would fall.