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How is intraday Moving Average calculated? How the moving average line changes when chart scale changes?


Guest CowboyJJ

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Guest CowboyJJ

I am probably asking a very dumb question here but I just can't find the answer I am looking on Google ( and I really can't believe that).

Let's take 5 day moving average for example.

We all know its official definition is the average of the closing prices of the last 5 five days. But in reality it isn't, right?

For example, when I look at the live chart of any stock, clearly the 5DMA line is updated as new prices trickle in. So, doesn't that mean the formula of live 5DMA should be (live  price + previous 4 days' closing prices)/5? Or is it ? Can anybody clarify exactly how the live 5DMA line is calculated?

Second question: The 5DMA line changes when the scale of the price chart changes. For instance, the 5DMA line on a 6M chart is clearly not the same 5DMA line on a 5D chart. And I don't think it's just a matter of granularity. Why? How is the line calculated differently when the chart scale changes? To me, it seems that when the scale of the price chart changes from 1D to 1M, the moving average line changes from 5-day average to 5-Month moving average. Or am I wrong?

Anybody who knows please help! Because I just can't make sense them!

Thanks

 

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Hi @CowboyJJ,  your last sentence about changing with time scale is correct. The 5 day moving average can only apply to a daily chart, if you change the time frame to the hourly chart it becomes the 5 hour moving average.

The 5 day moving average is the average from the previous 5 days and plotted on today's candle, day six. It won't move during the day as day six prices change and will only change on day 7 when day 6 becomes the last of the 5 days used for the calculation, the 5 hourly moving average will only change every hour. 

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Guest CowboyJJ

Hi @Caseynotes, thanks for such a quick reply! Also thanks for confirming my suspicion with regard to my second question.

With regard to my first question I'm afraid I have to disagree with you due to two observations:

1. If what you said were correct, the 5DMA line (or any moving average lines) would have been piece-wise constant. Yet they are not. They are all smooth lines.

2. In fact, those 5DMA lines on both IG and Yahoo Finance (I use the latter more) are updated intraday with new prices. They are not static numbers and get updated with new intraday stock prices. The old text-book definition of 5DMA clearly doesn't seem to apply in this case.

Do you or anybody know why this is?

Thanks 

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@CowboyJJ, on a daily chart there is only one bar per day, the plot of the average of the previous 5 days will not move though the daily bar itself may lengthen or shorten.

The data plot itself is a single point for each day that has been joined up to the previous plot.

The term DMA can only be applied to a daily chart, if you change time frames it is no longer a DMA, if you are looking at a 1 hour chart has become the the HMA which is completely different and will update every 1 hour.

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