Moving Average
A smoothed line on a chart that calculates the average price over a set number of periods, filtering out short-term noise.
A moving average smooths price history into a trend line. The 50 and 200 are the most watched: price above the 200-day average is the classic long-term uptrend signal.
A moving average is a technical indicator that smooths price data by calculating the average price over a specified number of periods. It creates a continuously updated line that filters out fluctuations and reveals the underlying trend direction. Price above the moving average suggests an uptrend, price below suggests a downtrend. The two main types are simple moving averages (SMA) and exponential moving averages (EMA). A moving average lags by design: it shows the trend that has already happened, not the one about to start. The 200-day average is a favourite line in the sand for institutions, which makes it a self-fulfilling level more often than a pure technical signal.
How It Works
- Recalculates with each new bar, dropping the oldest data point and adding the newest
- Short-period averages (10, 20) track price closely; long-period averages (100, 200) define the broader trend
- A golden cross (short MA above long MA) is bullish; a death cross is bearish
- Moving averages act as dynamic support in uptrends and dynamic resistance in downtrends
Trading Tips
Start with the 50 and 200-period moving averages on a daily chart, the most widely watched levels
Moving averages work best in trending markets; in sideways conditions they generate false signals
Use the slope of the moving average, not just price position. A flat MA signals a range-bound market.
Related Terms
Sources
- InvestopediaMoving average explained
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