Home/Blogs/Learn More About the 7-Day Moving Average and its Calculation

Learn More About the 7-Day Moving Average and its Calculation

20 Sep 2023

Introduction

  • Moving averages are a price chart's most popular, genuine, and reliable trend indicator.
  • They can be short, moderate, or long-term and refer to the closing prices for a given number of consecutive trading days.
  • The 7-day moving average is a short-term trend indicator.
  • Simply put, it is the average closing price of the last seven trading days. It helps understand the average closing price movement over a week.

Open Trading Account and Start Trading!

What is the 7-Day Moving Average?

As discussed above, a 7-day moving average is a short-term trend indicator and is shown in purple in the BSE Sensex stock prices. It indicates changes like the steep downward trend in prices due to global issues like COVID-19, the skyrocketing economy due to the epidemic, and the dumping of stock on a large scale to avoid losses.

How is the 7-Day Moving Average Calculated?

The 7-day moving average for a given time is calculated by adding the closing stock prices for the given number of days (represented by n) and dividing the sum by n.

Let’s understand it with an example:

Here is the table of stock ABC with the last 7-day closing prices:

Day Closing Prices
Day 1 40
Day 2 45
Day 3 52
Day 4 60
Day 5 63
Day 6 72
Day 7 70

7-Day Moving Average = (CP1+ CP2+ CP3+ CP4+ CP5+ CP6+ CP7)/7

= (40+ 45+ 52+ 60+ 63+ 72+ 70)/7

If you want to calculate Day 1’s average, you need to average out the prices for the last seven days. When you calculate Day 2’s average, the first data point will be removed and the value for the 8th day will be added.

Where is the 7-day Moving average Used?

The 7-day MA comes in handy for the following:

  • Support resistance: The moving averages are used to double the support or resistance levels in a short period of time. This level helps traders decide their entry or exit from a particular trade.
  • Price crossover: Moving averages are used to determine when to sell or buy. Using this strategy, traders can buy when the price rises above the MA and sell when it falls below it.

Conclusion

  • To sum up, traders use different moving averages at different times to arrive at potential uptrends or downtrends in the future.
  • When the 7-day moving average is higher than the long-term average, traders expect a similar uptrend in prices.
  • When it is less than the lower moving average, it may signal a downtrend in prices.
  • This way, they can make strategies and trading decisions to either earn profits or prevent losses. 

 

Related Articles: What is Alpha in Stocks | What is After Hours Trading | What Are Call and Trade Auto Square Off Charges | What is trading on equity

 

Popular Stocks:  HDFC Bank share price | ICICI Bank Share Price | UPL Share Price | Tata Consumer Share Price | Divislab Share Price

Checkout more Blogs

You may also like…

Get Exclusive Updates

Be the first to read our new blogs

Intelligent investment insights delivered to your inbox, for Free, daily!

Open Demat Account
I wish to talk in South Indian language
By proceeding you’re agree to our T&C