What Is Moving Average?
Also known as: MA, SMA, EMA, Simple Moving Average, Exponential Moving Average
In short
A moving average is a core technical analysis indicator that smooths out price fluctuations and shows trend direction by recalculating an asset's average price over a set number of periods with each new period.
The two most common types are the simple moving average (SMA) and the exponential moving average (EMA). The SMA, for example, adds up the closing prices of the last 20 days with equal weight and divides by 20. The EMA gives more weight to recent prices and therefore reacts faster to price changes. Short-period averages are more sensitive; longer-period averages such as 50 and 200 days are used to follow the overall trend.
Analysts interpret moving averages in several ways: price trading above the average points to an uptrend and below it to a downtrend; average lines sometimes act as dynamic support or resistance. A short-term average crossing above a long-term one is called a golden cross, and crossing below it a death cross. Indicators such as MACD are also derived from moving averages.
Because moving averages are based on past prices, they are lagging indicators; they show trend changes only after they have occurred. They can produce many false signals in sideways and choppy markets; for this reason, they are usually evaluated together with other indicators and trading volume.
Last updated: · This content is for information purposes only and is not investment advice.