The average moving average for any historical month is a useful tool to use. The standard deviation is the smallest possible variation in the moving average: the less it is, the more reliable it is. On a monthly basis, the standard deviation has the smallest standard error. If we look at quarterly returns by the S&P 500 SPX, from the second quarter through the end of the third quarter of 2015, the trailing 30-day average was about 0.5%, and the moving average was about -6.9%. For the previous quarter, from the first quarter through the end of the fourth quarter, the trailing 30-day was down 4.6% and the moving average (or beta) was -5.3%. The Standard Error of the Moving Average for each date is also a useful gauge. On a quarterly basis, the Standard Error of the moving average is about 1% of the mean. However, if we look at annual returns, the Standard Error is much, much larger than 1% because the mean returns are very close to one. Also, because most historical returns are very small, the Standard Error tends to be greater for annual returns than for quarterly.
What should you pay attention to? The moving average is simply an investment indicator. It should be treated as only one of many things you can take into account when making strategic decisions for your portfolio. Some of their uses are as follows: Determining whether a certain asset class is attractive (that is, whether it is a high risk asset class) – investing in that asset class is risky, but is often a good investment – looking at a 30-day moving average gives you an idea of the “normal” range that is in place. Determining if a stock is expensive (high volatility) or cheap (low volatility) – investing in that stock is expensive, but low volatility can be attractive – the moving average can give you an idea of a “normal” range for the price of the stock, but if you want an idea of when the stock could go up or down, buying at the low end of the range is usually a good decision
– investing in that stock is expensive, but low volatility can be attractive – the moving average can give you an idea of a “normal” range for the price of the stock, but if you want an idea of when the stock could go up or down, buying at the low end of the range is usually a good decision Determining if a particular index is “healthy”; i.e
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