Moving Average Calculation

[Ivan]

Mark,

As I understand moving averages the line should not start until after the oldest price plus the length of the average, i.e., a 28 week moving average line should not show until 28 weeks after the oldest price. But the lines I'm seeing in FM begin with the oldest price. Can you tell me how the moving averages are calculated in FM?

Thanks,
Ivan

[Mark]

Hi Ivan,

Fund Manager interpolates all the necessary prices to get a moving average for whatever graph dates you have set. If those prices are before the first recorded price, it uses the first recorded price when interpolating.

[Ivan]

So if I graph a 28 week moving average with a range from the earliest price to date, it assumes 28 prior weeks at the oldest price. Is that correct? I just want to understand what is happening.

[Mark]

Hi Ivan,

I don't think what you said is correct... For any plotted point, FM gets the prices back 28 weeks from that point, and uses all those points to calculate a moving average. If it has to go back before the earliest price point, it uses the price from the earliest recorded point.

Let's take a 1 week moving average as an example:

1 week MA plotted on 4/8

Recorded prices:

4/8: 12
4/7: 11.5
4/6: 11
4/5: 10 <- First recorded price

The 1 week moving average on 4/8 would be:

(12 + 11.5 + 11 + 10 + 10) / 5

Notice, when it needed the price for 4/4, it used the price from 4/5, since that is the first recorded price.

[Ivan]

Thanks Mark,

I think we're saying the same thing. I created a portfolio with the four values you gave and added one on 4/4 of 9. When I let PM do a 1 week moving average on it, the point on 4/4 was 9:

(9 + 9 + 9 + 9 + 9)/5

Not very meaningful since only one of the 9's was real data. For that reason many moving average graphs I have seen don't begin the moving average line until the point where they have full real data to do the calculation (on day x from the first piece of data for an x day moving average). Not a problem. I just wanted to be sure I understood what was happening.

Ivan

[Mark]

Hi Ivan,

I can understand your point. It may indeed be better to just not plot if the moving average period begins before the first recorded price.