A moving average (MA) is the simplest and most widely used indicator: the average price over the last N periods, recalculated each bar. By smoothing out the noise, it turns a jagged price line into a single line whose slope is a clean read on the trend's direction.
What it tells you
The MA's slope is the trend (up, down, or flat), and its level acts as dynamic support or resistance — price in an uptrend often pulls back to a rising MA and bounces. Common lengths carry meaning: the 20 tracks the short-term trend, the 50 the intermediate, and the 200 the long-term — the line institutions and algorithms watch most.
SMA vs. EMA
- Simple MA (SMA) — equal weight to every period; smoother, steadier, but slower to react.
- Exponential MA (EMA) — more weight on recent prices; faster to turn, but more prone to whipsaw.
- Trade-off: there is no 'best' — faster means earlier signals AND more false ones. Pick to match your timeframe and tolerance for noise.
The core caveat
Moving averages are lagging by construction — they describe the trend after it has formed, not before. They shine in trends and fail in ranges, where price chops back and forth across the line generating false signals. An MA is a trend-confirmation tool, not a timing tool — which is why the next lessons combine it with others.