- 1). Select the time period for your moving average calculation. The moving average can be for any number of days and traders use moving averages from 10 to 200 days. The calculation usually uses the security value a the close of the trading day. For an example here, a three-day simple moving average is the period.
- 2). Add together the closing price for the most recent number of days equal to your selected time period and divide the result by the period number. For example, stock XYZ closes the last three days at $10, 10.50 and $11.25 per share. The total of the share prices is $31.75, and dividing by three gives a moving average of $10.58.
- 3). Add the closing price for the next trading day and drop the price from the first day in the average and again divide by the period number. In the example, stock XYZ closed at $8 per share on day four. The $10 from day one is dropped and the new total is $10.50 plus $11.25 plus $8 equals $29.75. Dividing by three provides a new moving average of $9.92.
- 4). Graph the newly calculated moving average value each day on a chart with the high, low and close price of the security. Connect the daily moving average values with a smooth line to show the trend.