TAI - SMA(1/199)(price)

Name, Sometimes Called:

SMA(1/199)(price)

Brief Description:

A positive development occurs when the 1-day simple moving average (SMA) of an issue's closing price crosses over the 199-day SMA.

This is written as

SMA(1)(price) x+ SMA(199)(price)

This indicator is no longer positive when the 1-day SMA crosses under the 199-day SMA

SMA(1)(price) x- SMA(199)(price)

Some analysts might say this TAI is no longer positive when SMA(1)(price) is closer to SMA(199)(price) than it was yesterday.

Definitions, Formulas:

To calculate the simple moving averages (SMA) we use two periods: 199 trading days and one trading day. The 1-day SMA is just the current day’s closing price.

For this technical analysis indicator (TAI) we have:

SMA(1)(price)k = Ck, the closing price for today k

SMA(199)(price)k =

where

 k = the position of day k in the period
= the closing price on day i

A positive development for this indicator occurs when SMA(1)(price) x+ SMA(199)(price)

This indicator is no longer positive when

SMA(1)(Closing Price) x- SMA(199)(Closing Price)

Which is the same as

Closing Price x- SMA(199)(Closing Price)

Some analysts might say this TAI is no longer positive when the closing price gets closer to SMA(199)(price) than it was yesterday. This is debatable as the chart below shows several dips and subsequent recovery.

Positive Development Calculation:

A new positive development (NPD) occurs for this technical analysis indicator (TAI) when SMA(1)(Closing Price) x+ SMA(199)(Closing Price).

This TAI is no longer positive when SMA(1)(Closing Price) x- SMA(199)(Closing Price). Optionally it may no longer be positive when Closing Price is closer to SMA(199)(Closing Price) than it was yesterday.

If this TAI is still positive tomorrow, it will no longer be new, but will be a cumulative positive development (CPD).

If this TAI was a new positive development (NPD) yesterday, and is still positive today, then it becomes a cumulative positive development (CPD).

History:

Simple Moving Averages (SMA) are considered to be among the simplest, oldest, and most widely used of statistical stock price analysis methods. As one example, the 200-day SMA has been used for decades. Averages smooth data and make it easier to spot trends. A moving average requires data from previous trading periods, so it lags the price and is one of a class of lagging indicators. Lagging indicators tell you what prices are doing now, or in the recent past, so they are useful when stocks are trending.

The word “simple” is used to indicate that each day’s price is given equal weight. Not every moving average weights each day’s price equally. For other types of moving averages, see exponential moving average (EMA), triangular, variable, and weighted moving averages.

This chart shows the SMA(1/199)(Closing Price) indicator in action. RADN did not close under the SMA(199)(Closing Price) until mid-April 2005. The April 5th, 2005 intraday low does not make this TAI no longer positive, but it certainly is worth knowing. Notice the slow rate of change of the SMA(199)(Closing Price). This makes it unsuitable for our short term range, but is worth examining prior to selection.