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9 views

8 Marks 1

lnjknm

Uploaded by

charlesjonal007
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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1.

Consider the volume of electricity sold to residential customers in South


Australia each year from 1989 to 2008 (hot water sales have been excluded).
The data are also shown in the following table.
Year Sales (GWh)

1989 2354.34

1990 2379.71

1991 2318.52

1992 2468.99

1993 2386.09

1994 2569.47

1995 2575.72

1996 2762.72

1997 2844.50

1998 3000.70

1999 3108.10

2000 3357.50

2001 3075.70

2002 3180.60

2003 3221.60

2004 3176.20

2005 3430.60

2006 3527.48

2007 3637.89

2008 3655.00

Evaluate and find all the three types of errors.

1. 3-Month Moving Average


2. 5-Month Moving Average
3. 3-Month weighted moving average [ 0.6,0.3,0.10]
4. 4-Month weighed moving average [ 0.5, 0.3,0.2,0.1]
2. Consider the sales figure of a company for the past 10 months.

DAY SALES

1 50

2 52

3 55

4 53

5 54

6 56

7 58

8 60

9 62

10 65

Evaluate and find all the three types of errors.

1. 3-Month Moving Average


2. 5-Month Moving Average
3. 3-Month weighted moving average [ 0.6,0.3,0.10]
4. 4-Month weighed moving average [ 0.5, 0.3,0.2,0.1]

3. Consider the sales data:

Jan Feb Mar Apr May Jun Jul Aug Sep Oct

128 128 128 129 129 129 129 129 129 129

Evaluate and find all the three types of errors.

1. 3-Month Moving Average


2. 5-Month Moving Average
3. 3-Month weighted moving average [ 0.7,0.2,0.10]
4. 4-Month weighed moving average [ 0.5, 0.25,0.15,0.1]
Importance of Moving Average Method

The direction of a moving average line assists the trader in understanding


which way the price of a financial instrument is moving.

If the price of a financial instrument is above the moving average line, it is said
to be on an uptrend. On the flip side, if its price is under the moving average
line, it’s on a downtrend.

If the moving average line of a stock doesn’t show any vertical movements for
a long period of time, it indicates that the stock price is ranging and not
trending. This is observed when a stock is traded between constant high and
low prices for a certain period.

Moving averages also work as support and resistance indicators for traders.
Most times, the price of stock finds support at the moving average line when
the trend is up. Conversely, it meets with resistance at the line when the trend
is down.

Also known as a lagging indicator, a moving average line is based on previous


closing prices. Hence, instead of giving a warning beforehand, it will only
confirm a change in trend.

Merits of Moving Average Method

• Moving averages help in identifying the trends. This allows the traders
to avail of and understand the trends established in the market.

• It also acts as a support system as it helps in determining potential price


support.
• It provides the support to measure the momentum as well. It helps to
determine the direction and strength of the asset’s momentum.

Demerits of Moving Averages

Although calculating moving average offers a quick and easy way to identify
trends of financial instruments, they have the following disadvantages:

• Since each stock or commodity has its unique price history, no set rules
can be implemented across all markets. Hence, a moving average cannot
show the constant changes in their prices.

• The primary purpose of identifying a trend is to predict the future


values of the stock. But, if the security does not trend up or down,
calculating moving averages will not be able to provide the traders with
an opportunity to profit.

• Stocks often tend to show a cyclical behavioural pattern that cannot be


interpreted by a moving average.

• Moving averages have the ability to be spread out over different time
frames, but this can become quite tricky in specific situations.

• Similar to other technical analysis methods, moving averages do not


consider the changes in primary factors that have an effect on the
market price of a stock. Changes in the managerial structure of a
company, changes in product demand of industry are also not taken
into account.

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