A Study of the Impact of Moving Averages on Predicting Stock Market Trends: A Study of NIFTY 50

Abstract

The stock market is inherently volatile and influenced by many factors, making accurate trend prediction both challenging and important for investors and analysts. This study examines the effectiveness of moving averages—specifically, Simple Moving Averages (SMA) and Exponential Moving Averages (EMA)—in forecasting stock market trends, using the NIFTY 50 index as a representative benchmark of India's equity market. By analyzing historical data from 2010 to 2023, the research evaluates the predictive ability of different moving average strategies, including crossover events and trend confirmation signals. The study uses backtesting methods to assess the performance and reliability of these indicators in identifying potential buy and sell signals. A Paired Sample T-Test is performed to compare the performance of a moving average crossover strategy with a traditional buy-and-hold approach when predicting trends in the NIFTY 50 index. A correlation analysis is also conducted to examine the relationship between the NIFTY 50 index and its exponential moving averages (EMAs). The results indicate that moving averages can be valuable tools in technical analysis, providing insights into market direction and improving decision-making. However, their effectiveness varies depending on the timeframes and market conditions considered. This research adds to the existing body of knowledge by providing empirical evidence on the role of moving averages in stock market forecasting, particularly in emerging markets like India.