Question

1. # Mention Two Merits Of Moving Average Method Of Determining Trend

Moving averages are a popular trend-based technical analysis tool that is used to identify trends and predict future prices. They are also used to identify overbought and oversold conditions. In this blog post, we will discuss two merits of the moving average method of trend determination.

## What is Moving Average Method?

The Moving Average Method is one of the most popular technical analysis tools used in the stock market. It is a mathematical calculation that helps identify trends and reversals in trading activity over time.

There are two main benefits to using the Moving Average Method: it helps identify long-term trends and provides traders with an objective perspective on current prices. The method smooths out short-term volatility and gives investors a better idea of where the market is heading.

The Moving Average Formula uses simple arithmetic to calculate the average price of a security or commodity over a given period of time. The calculation begins by selecting n periods, t, and calculating the closing price for each security or commodity during that period. The sum total of these values becomes your moving average value for that particular period.

For stocks, the moving average can be calculated as follows:

where: MA ( stocks ) = Stock’s moving average value (or “mean”)

For commodities, the moving average can be calculated as follows:

where: MA (Commodities) = Commodity’s moving average value

## Advantages of Moving Average Method

Moving average is a widely used technical analysis method that can be found in many investment and trading books. It is very simple to understand and use. The first merit of the moving average method is that it smooths out the daily price fluctuations. This makes it easier to identify trends.

The second merit of the moving average method is that it identifies short-term cycles. By looking at the moving average, you can see when prices are over or undervalued and whether there’s room for further speculation or risk-taking.

## Disadvantages of Moving Average Method

1. The Moving Average Method is based on the assumption that past data points can be used to predict future ones.
2. It can be used to identify short-term trends, while avoiding noise caused by intra-day fluctuations.

## How to use Moving Average Method

The Moving Average (MA) is an indicator that can be used to help identify overall trends in a data set. It works by averaging data points over a certain period of time and calculating the moving average percentage. This helps to smooth out any sudden changes in the data set and gives you a better idea of how trends are developing.

There are two main benefits of using the MA:

It helps to eliminate erratic movements in the data set, which can help you better understand overall trends.