Question

The general purpose for using a moving average to analyze a stock is to _____.

smooth out drastic falls in prices to demonstrate a more optimistic narrative to other investors.

discount the effects of momentum on stock prices.

measure underlying movements in order to gather trends that cannot be seen by simply analyzing daily or short-term movements.

understand a stock price on a particular day, relative to its performance in previous years. T

Answer 1

measure underlying movements in order to gather trends that cannot be seen by simply analyzing daily or short-term movements.

The moving average method is a representation of historical data. The moving average removes random variation and helps one to determine the underlying trend in stock prices.

Option one is incorrect because it refers to the smoothed moving average method. Option II is incorrect because the moving average method does not discount the effect of momentum. Also option three is incorrect because this method does not look at only a particular day.