|  MAR 1990

Volume-adjusted moving averages by Richard W. Arms Jr.

Volume-adjusted moving averages by Richard W. Arms Jr. A moving average line is just that. It smoothes price over time, reducing erratic, shorter-term swings to a smoother, more comprehensible line. Any changes in the parameters of the moving average line, such as the time involved, the weighting, the offsetting of the print and so forth, are only attempts to make the smoothing more informative. However, there has been no real change in that the analysis is still dependent on only two factors: the price of the stock, commodity or average being studied, and the time period. This is not to say the information is without value. Indeed, moving average lines are extremely informative. Through them, basic trends can be seen more clearly, uninfluenced by short-term fluctuations. When different moving averages are combined, the crossovers often can be very profitable signals. However, time-based moving averages make the assumption that all days are equal. Whether the stock is quiet and inactive or swinging wildly and generating huge volume, the day's contribution to the moving average is the same: one price entry in the moving average.

by Richard W. Arms, Jr.