In this third article I will discuss the Smoothed Moving Average. This is one of the three different types of moving averages available in the ChartMill stock screener, which are :
So how are they being calculated, what are their properties and what kind of moving average is being used for what purpose?
The Smoothed Moving Average (SMMA) is a combination of a SMA and an EMA. It gives the recent prices an equal weighting as the historic prices as it takes all available price data into account. The main advantage of a smoothed moving average is that it removes short-term fluctuations, and allows us to view the price trends much easier, which is why they are widely used in trending markets.
Unlike the other MA’s discussed above, the oldest price data is never deleted when a new price is added to the calculation. The oldest price data has a constant impact on the calculation, albeit minimal, due to a low assigned weight. Even more than the SMA, the SMMA ensures that temporary fluctuations in price (also known as 'noise') are filtered out. In this way, the SMMA succeeds - better than the other MAs - in visualizing the prevailing trend.
The SMMA, which has a much larger delayed reaction than the SMA and EMA, is ideal for those who mainly focus on the long term. For example, position traders who base their investment decisions primarily on a company's fundamentals can use this type of moving average as a technical tool to determine a visual long-term price trend. A 100 or, for example, 200 SMMA on a daily chart accurately reflects the long-term trend of the stock.
In the StockCharts menu, click on the plus sign and choose 'select overlay to add', scroll down to the Smoothing Moving Average.
Next, select the 'Look back Period' and choose an appropriate color.
The ChartMill TEAM