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Exercise

Adding a moving average to financial data

One of the most popular indicators to add to a trading strategy is the 200-day simple moving average (SMA). This is a technical indicator of the average closing price of a stock over the past 200 days. Other moving averages can be of varying length, such as 50-day, 100-day, etc.

Whenever the price is above the 200-day moving average, a whole assortment of good things usually happen, such as the asset appreciating in price, low volatility, and so on. Getting a long-lasting visual might shed light on why this indicator is mentioned so often.

The TTR package has a function that calculates moving averages, SMA(), which takes in a price series x and computes the arithmetic mean over n days. A call of SMA() with a lookback window of 50 days could look like the following:

SMA(Cl(GDX), n = 50)

In this exercise, you will use the SMA() function. The quantmod and TTR packages have been loaded into your workspace, as well as the SPY object.

Instructions

100 XP
  • Create a plot of the closing prices of SPY.
  • Use the lines() function to add a 200-day SMA of the closing prices of SPY. Color the line red by setting the col argument to "red".