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What is DMA and how it helps
When you watch the stock market commentary on television, very often you come across terms like 'DMA' or day moving average. At a time when stock markets in India have seen a broad-based selloff, stock market pundits are out there speaking about how technical charts suggest the bottom or a top in an individual stock, or a benchmark index.
It is not easy to understand or interpret the language used by most of these experts
Here are some pointers that could help you relate to the concept of moving averages:
Touted to be the biggest welfare programme in the world, the Food Security Bill aims to provide food grains to the poor - or 67% of India's population - at a subsidized rate. The bill adds on to the existing Public Distribution Scheme (PDS) under which a significant portion of people below poverty line (BPL) did not have access to subsidized wheat or rice on account of a lack of ration card. However, the bill is widely disputed as it is seen to be inflationary, and more of a political gimmick. There are also doubts about the actual success of the scheme.
Daily Moving Averages
There are various kinds of moving averages. Of these, the most commonly quoted is the daily moving average. If you want to track the trend over, say, a period of 30 days, you monitor the 30-DMA. This will help you identify the short term bullish or bearish outlook by comparing the current trading price to the average.
However, in situations such as these, volatility is high. So one day markets may fall 400 points, and rise 300 points the very next day. To counter these drastic fluctuations, analysts use the 200-DMA or the 200 day moving average. Since this average takes into account values over a longer term of 200 days, it eliminates short-term instabilities.
So, if the value of a stock is falling, traders wait for it to reach a certain level called 'support' before buying. Similarly, if the price of a stock is rising, then it is better to wait until it reaches the higher point of a range called the 'resistance' level.
In US, there are 252 stock market trading days. According to www.moneyweek.com, the Dow Jones Industrial Average has mostly reverted in a year to its 252-day moving average each year. However, in 2013, it has yet to revert to the 252-day moving average or DMA. The only year this happened before was in 1989.