MOVING AVERAGE Meaning and
Definition
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A moving average is a statistical calculation that is widely used in various fields, such as finance, economics, and data analysis. It is a commonly employed technique for smoothing out fluctuations and identifying trends within a dataset or time series.
In essence, a moving average is a calculation that represents the average value of a series of data points over a specified period. It involves adding together a set of values and dividing them by the number of values in that set. The "moving" aspect refers to the fact that the average is recalculated as new data becomes available, by dropping the oldest value and including the newest.
The primary purpose of using moving averages is to reduce random variations or noise within a dataset and emphasize the underlying trends or patterns. By smoothing out the data, moving averages help to identify long-term trends and eliminate short-term fluctuations. This allows analysts to understand and interpret the data more easily, making it useful for making decisions, predictions, or forecasting future values.
Moving averages can have different types, such as simple moving average (SMA) or weighted moving average (WMA), depending on how the data points are weighted in the calculation. Additionally, different time periods are used to define the moving average, such as 10-day moving average or 50-day moving average, with longer periods resulting in smoother trends and reducing the impact of short-term fluctuations.
Overall, the moving average is a valuable statistical tool that assists in interpreting data, smoothing out noise, and highlighting trends within datasets or time series, making it widely used across various domains.
Etymology of MOVING AVERAGE
The term "moving average" has its origins in the field of statistics and mathematics. The word "average" comes from the Late Latin word "averagium", which refers to a customary duty or tax imposed in the Middle Ages. Over time, "average" came to signify the mathematical concept of a central tendency or a measure of typical value.
The term "moving" in "moving average" refers to the fact that the calculation of this statistical tool involves moving through a set of data points over a specific period. It emphasizes the idea that the average is continuously updated as new data points are added, while older data points are dropped or "move away" from the calculation. The concept of a moving average has been used in various fields, such as finance, economics, and engineering, to analyze trends and smooth out fluctuations in data.
