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What is DMA or Daily Moving Average in stock markets?

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What is DMA or Daily Moving Average in stock markets?
Moving Average is an important measure used primarily by technical analyst in the stock market industry who on the basis of the statistics arrive at decisions concerning stock price in future course. With an outlook that historical trends to an extent influence future stock price and make determination of future stock price possible, the measure comes handy for such professional.

 

So what exactly is moving average? It is a technical terminology that is derived majorly from price and volume factor, as it is the main indicator that reflects the likely pattern. Mathematically, it is the average of a particular parameter in 'n' days. And so, a 200 DMA is the average price of a stock or index in the last 200 trading days.

The moving average measure is supposed to smoothen out changes in stock price on a daily basis and helps determine trend in the market.

"Moving" term is used as the stock price changes on a daily basis and 200 DMA factors in the closing price of the past 200 days. And daily moving average of 200 or DMA 200 is considered apt for indicating a long term trend. Moving averages for a shorter term of 20 and 50 days is also computed.

In stock market parlance, a short time of 10-15 days indicates short or fast DMA while a long span of 50-200 days covers long or slow DMA.

Significance of DMA

DMA determined for a period together studied with the price line determine direction of stock or index price.

Helps in the determination of short-term trend with respect to price movement which applies for only a shorter term of 3-6 months.

Not determines the fundamentals of a company.

DMA statistics can be used by long-term investors for deciding entry time in a particular stock.

GoodReturns.in

Story first published: Wednesday, December 18, 2013, 14:32 [IST]
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