Moving Average

The average price of a stock over a specific time period, used to identify trends.

What Is a Moving Average?

A moving average smooths out price data by creating a constantly updated average price over a specific time period. It's called "moving" because it recalculates with each new data point, dropping the oldest value and adding the newest.

Types of Moving Averages

• Simple Moving Average (SMA): The straightforward average of prices over N periods. A 50-day SMA adds up the last 50 closing prices and divides by 50.
• Exponential Moving Average (EMA): Gives more weight to recent prices, making it more responsive to current conditions.

Key Moving Averages

Certain moving averages are watched by millions of traders worldwide:

• 50-day MA: The short-term trend indicator. Stocks trading above their 50-day MA are considered to be in short-term uptrends.
• 150-day MA (30-week): The intermediate trend. Used in many professional trading systems.
• 200-day MA: The long-term trend dividing line. The "golden cross" (50-day crossing above 200-day) and "death cross" (50-day crossing below 200-day) are among the most watched signals in technical analysis.

Moving Averages as Support and Resistance

Moving averages often act as dynamic support and resistance levels. In an uptrend, stocks frequently bounce off their 50-day MA. In a downtrend, they often find resistance at it. This makes moving averages valuable tools for planning entry and exit points.