Over the years numerous technical indicators
have been developed to describe performance, as well as to predict future price
movements. In this section we introduce five of the most useful indicators and
explain how they are calculated.
A price/time series can be seen as a representation of a longer-term trend on which is superimposed on a
shorter-term, random fluctuating "noise." In order to obtain a clean
trend signal, using moving averages can filter out shorter-term noises. The
formula for calculating the p-interval moving-average time series is given by
is the price time series, and n is the number of periods.
The moving average defined above assigns equal
weight to every point in the averaging interval; consequently, it may not
emphasize the most recent price behavior. To overcome this, some people use the
p-period exponential moving average:
In reality, it is good enough to run the summation through j=i-2p, to j=i.