A 30-day moving average (MA) is a short term technical indicator of how stock prices are moving. It is merely the average of closing prices over the last 30 days. A simple moving average like a 30-day MA is handy for short term traders to gauge the direction of the prices in the near term, as it stays very close to the actual price movement.
Representation of A 30 Day Moving Average of BSE Sensex
The purple line representing the 30-day MA shows how the stock prices moved over the last month, rising unevenly before beginning a downward trend.
A moving average over 30 days is a great indicator to see the price trend in the ultra-short-term. It clears out cluttered daily prices while also reflecting the volatility. Prices tend to be volatile in the near term, which is why short term moving averages may not be as smooth as long-term moving averages are.
Closer To Current Price Action
30-day moving average stock prices brings you closest to market trends in the immediate future.
Does Not Have A Big Lag Effect
This is a significant difference between short term and long term moving averages. The long term moving averages come with a more considerable lag effect compared to dynamic price action in the present, because they take into account historical prices over a more extended period. But they serve an essential purpose for long term investors who are in it for wealth creation and not day-to-day trading.
Easy To Calculate
Simple moving averages like a 30-day MA are straightforward to calculate, and also customisable. All you need to do is, add up the closing prices of a given stock or index for the number of days (day 1+day 2+day 3…day n) that you want to calculate the moving average for, and divide it by the number of days ‘n’, also called the number of periods.
Used For Buy/Sell Decisions
Instead of having to monitor the prices all day manually, a lot of short term traders rely on short term moving averages to take buy and sell decisions. In the price crossover strategies, traders look to buy or go long or buy when the price is above the moving average. They sell or short a stock when the price is below the moving average. This strategy is sometimes supported with volume principle to arrive at more profitable decisions. In that, traders would go long only when the price rise above the MV is supported by thickening of trading volume as well. You can also find 30 day moving average stocks, which are stocks that have performed well and beaten the 30-day moving average.
A simple moving average like a 30-day MA helps smoothens out the impact of dynamic ups and downs in stock prices, also referred to as the ‘noise’ of price action. Moving averages are indicators of trends. An upward trend indicates a likely surge in prices, and a downward-looking slope may show price decline. The inclination of the slope can point to whether the prices have bottomed or topped out.