8.

4 Trends in Stock Closing Prices (HW #4, 8, 10, 13) Name: __________________________

8.4 Trends in Stock Closing Prices

Objectives:
● Explain how data is smoothed.
● Calculate simple moving averages using arithmetic average formula.
● Calculate simple moving averages using the subtraction and addition method.
● Graph simple moving averages using a spreadsheet.

Vocabulary
smoothing Statistical tools that allow an investor to reduce the impact of price
techniques fluctuations and to focus on patterns and trends

simple moving A smoothing technique that is calculated by determining the mean

average (SMA) closing prices over a given period.

lagging
indicators

fast-moving
average

slow-moving
average

crossover

How can stock data be smoothed?

1. Simple Moving Averages using the Arithmetic Average Formula

Smoothing data can allow investors to focus on patterns and trends. One technique for
smoothing is the simple moving average (SMA) which is calculated by determining the
mean (arithmetic average) of closing prices over a given period of time.

Moving averages are known as lagging

indicators because they use past data.

Recall that the mean of a set is the sum

of the items in that set divided by the
number of items.
8.4 Trends in Stock Closing Prices (HW #4, 8, 10, 13) Name: __________________________

Avg for days 1-5

Avg for days 2-6

Avg for days 3-7

Avg for days 4-8

Avg for days 5-9

Avg for days 6-10

8.4 Trends in Stock Closing Prices (HW #4, 8, 10, 13) Name: __________________________

2. Simple Moving Average using the Subtraction and Addition Method

Method: Suppose you want to determine a 3-day simple moving average for six trading
days. Let the trading prices for each day be represented by A, B, C, D, E, and F. The
trading prices for the days 1-3 are A, B, and C. The average of those prices is:

To find the average of days 2-4, subtract price A and add price D:

Rearranging the terms and simplifying, this becomes:

Add the first 4 prices and divide by 4.

Use “-” and “+” to determine the averages for days 2-5
121 124
Use previous average, 4
and 4

Find the averages for days 3-6 and days 4-7

122 128
Use previous average, 4
and 4

120 126
Use previous average, 4
and 4

The simple moving averages are ________, ________, ________ and ________
8.4 Trends in Stock Closing Prices (HW #4, 8, 10, 13) Name: __________________________

Graph Simple Moving Averages Using a Spreadsheet

Spreadsheets have a sum function

with a format of: SUM(starting
cell:ending cell).

The formula in C11 and C12 is shown

on the left.

Rather than typing this formula

repeatedly, google sheets has a fill
command that recognizes the pattern.

To copy, select the cell with the

formula you want to copy, then choose
the appropriate fill command and drag
through the cells you want to fill with
the formula.
8.4 Trends in Stock Closing Prices (HW #4, 8, 10, 13) Name: __________________________

Crossovers
Sometimes, investors construct stock charts that depict moving averages for two
different intervals. The graph with the shorter time interval is known as the fast-moving
average, and the graph with the longer time interval is known as the slow-moving
average.

A crossover occurs when one time interval moving average graph overtakes another.
Some say that:
● An investor might consider buying when the fast-moving graph overtakes (rises
above) the slow-moving average graph.
● An investor might consider selling when the fast-moving average graph crosses
below the slow-moving average graph.

Regression Analysis
Regression analysis can be used to see if there is a correlation between two sets of
data. Financial analysts use regression techniques to look for trends in stock prices.
They might decide to buy or sell a stock based on the information from the regression
lines and curves.
8.4 Trends in Stock Closing Prices (HW #4, 8, 10, 13) Name: __________________________

Regression line equation: ____________________________________________

Calculation for predicted 37th day of trading:

(see https://mathcs.holycross.edu/~little/Mont201920/RegDirs.pdf for review of regression line in

google sheets)
8.4 Trends in Stock Closing Prices (HW #4, 8, 10, 13) Name: __________________________
8.4 Trends in Stock Closing Prices (HW #4, 8, 10, 13) Name: __________________________