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What are leading short and lagging long moving average indicators and how do we calculate them? e.g. for the following data set, and let window size be 2. Can you show me what the running leading and lagging moving averages are?

4 5 2 10 3 8 9

Reference: http://www.mathworks.com/help/toolbox/finance/movavg.html

Thanks!

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The lagging moving average would be [-, 4.5, 3.5, 6, 6.5, 5.5, 8.5] as with a window of 2 it averages the current reading with the previous (making 2 readings) and the dash says we don't have enough data. I would have said the leading moving average was [4.5, 3.5, 6, 6.5, 5.5, 8.5,-] but the statement that lead must be less than or equal to lag gives me pause. From the Wikipedia page:

"For a number of applications it is advantageous to avoid the shifting induced by using only 'past' data. Hence a central moving average can be computed, using both 'past' and 'future' data. The 'future' data in this case are not predictions, but merely data obtained after the time at which the average is to be computed."

But I don't know why a leading average (as opposed to central) might not be of interest.

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  • $\begingroup$ Thanks. In the context of stocks, it is not possible to compute a leading or central moving average as we do not know the prices in advance. Correct? So what does leading/central MA mean in that context? $\endgroup$ – user957 Apr 3 '11 at 3:29
  • $\begingroup$ People seem to do leading/central averages on past data. That is the point of the quote. If you know the data from long enough ago, you can do leading/central averages. It is a well-defined operation. Whether the output is useful/meaningful is left as an exercise to the student (and to his/her investors...) $\endgroup$ – Ross Millikan Apr 3 '11 at 3:45

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