Moving Average

### What is the main purpose of using a moving average? - [x] To smooth out short-term fluctuations and identify longer-term trends. - [ ] To calculate future stock prices. - [ ] To determine exact entry and exit points for trades. - [ ] To equalize all historical data points. > **Explanation:** The primary purpose of using a moving average is to smooth out the short-term fluctuations in the data and identify longer-term trends. ### How is a 30-day moving average calculated? - [ ] By averaging prices over 30 different stocks. - [ ] By using only the first and last prices of the last 30 days. - [x] By averaging the stock prices over the last 30 days and updating each day. - [ ] By using the stock prices of 30 different companies. > **Explanation:** A 30-day moving average is calculated by taking the average stock prices over the last 30 days and updating it daily by dropping the oldest price and including the newest price. ### What is a Simple Moving Average (SMA)? - [x] The arithmetic mean of a given set of prices over a specified number of periods. - [ ] A single day's stock price. - [ ] The average stock price of the year's highest prices. - [ ] The weighted average of stock prices. > **Explanation:** An SMA is the arithmetic mean of a set of prices over a specified number of periods, giving equal weight to all data points. ### What is one limitation of the moving average? - [x] It lags behind actual market data. - [ ] It predicts the exact future prices. - [ ] It only works with even numbers. - [ ] It changes historical data. > **Explanation:** One limitation of the moving average is that it lags behind the actual market data, as it relies on past prices to generate the average. ### In which scenario is an Exponential Moving Average (EMA) different from an SMA? - [ ] EMA gives equal importance to all data points. - [ ] EMA uses the highest price during the period. - [x] EMA places more importance on the most recent data points. - [ ] EMA exclusively uses future projected data. > **Explanation:** An Exponential Moving Average (EMA) is different from an SMA because it places more importance on the most recent data points. ### What type of data points are used in calculating a 12-month moving average? - [ ] Weekly data points - [x] Monthly data points - [ ] Daily data points - [ ] Yearly data points > **Explanation:** A 12-month moving average is typically calculated using monthly data points. ### What does a moving average help to mitigate in a data set? - [ ] Increase importance of extreme values. - [ ] Reflect the current value accurately. - [x] Smooth out short-term noise and volatility. - [ ] Account for non-relevant data points. > **Explanation:** A moving average helps to smooth out short-term noise and volatility, thus showing the longer-term trend more clearly. ### Why do traders use moving averages? - [ ] To simplify calculations. - [ ] To predict stock prices accurately. - [x] To identify trends and potential buy/sell points. - [ ] To keep constant trading logs. > **Explanation:** Traders use moving averages to identify trends and potential buy/sell points, rather than predicting the prices accurately. ### How frequently is a moving average updated? - [x] Every new data point within the period. - [ ] Only once a year. - [ ] Every quarter. - [ ] Every five data points. > **Explanation:** A moving average is updated with every new data point within the period, e.g., daily for a daily moving average. ### What role does a moving average play in technical analysis? - [ ] It determines historical errors only. - [ ] It calculates the exact current price of a stock. - [ ] It adds volatility to a stock's analysis. - [x] It is used to confirm trends and signal trades. > **Explanation:** In technical analysis, moving averages are used to confirm trends and signal trades, helping traders make informed decisions.