Moving Average
The average price over a set number of periods, recalculated as each new period closes.
Also called: ma · sma · simple moving average
In plain language
A moving average smooths price into a single line. A 50-period average is simply the mean of the last 50 closes, updated every period.
Its purpose is to make direction legible by removing noise. Price above a rising average is a different situation from price below a falling one, even when the last candle looks identical.
Every moving average lags by construction. It describes what has already happened, which is why it identifies trends well and turning points poorly.
The formula
Simple Moving Average
Sum of last N closing prices ÷ N
- N
- Lookback length, commonly 20, 50 or 200 periods
Why it matters
Moving averages give an objective, repeatable definition of trend context, and often act as dynamic support or resistance where pullback entries can be planned.
Common mistakes
- Treating a moving average crossover as a signal without any regard for context.
- Testing lengths until one fits the past perfectly, which fits nothing else.
- Expecting an average to identify tops and bottoms. It cannot; it lags.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
A moving average that weights recent prices more heavily than older ones.
A sustained directional bias in price, built from a repeating pattern of highs and lows.
A temporary move against the prevailing trend before it resumes.
The average price over a session, weighted by the volume traded at each price.
When price makes a new extreme but the indicator does not, suggesting momentum is fading.