A. When trading the S&P500 at different prices, it is very common for a long-term trader to take a small moving average and cross it into shorter-term periods and other long daily averages. That creates moving averages for long-term prices, which can be used for short-term trades.
Q. What is the difference between the moving average, and the average?
A. The moving average on the chart refers to the average of the prices it shows. The average was introduced in 1948 by John Nash. The S&P rose from 20,000 a year to 10,000 in 2 years. For some time, the average was more or less constant, but later, in 1992, it was set at 2,500. The standard moving average is the mean of the last 10 moves (or 10-day moving average), while the mean is the average price that is held for 10 consecutive days. Sometimes, investors will trade with the moving average.
Q. Where does the S&P average come from?
A. The S&P averages have been set historically, starting in 1948 with the price of the Dow Jones. Because the Dow was set at 20,000 a year, the price of the Dow rose to 10,000 and the S&P rose to 7,000.
Q. How did a moving average come about?
A. A moving average is not created in a vacuum. It comes from a large array of factors. Many people want to trade on a moving average because they want to see what the price is moving, and they want to gain profit by making the right trade with a large move. A trader is willing to take a small move to gain a large one. In all but a very few cases, the moving average is established to generate profit, and it can be adjusted to a very large extent. The S&P can move up or down more than 15 percent daily, but it doesn’t change the value of the markets, which moves about 2 percent annually.
Q. Why can’t I trade with a moving average?
A. You need to be able to place long-term and short-term calls, which are the same principle. A trader needs to be able to place a long-term call, or “call”, and a short-term call at the same time. A moving average won’t do that. It can be used when you want to see the current price, but
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