Moving Average - MA

Loading the player...

What is a 'Moving Average - MA'

A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random price fluctuations. A moving average (MA) is a trend-following or lagging indicator because it is based on past prices. The two basic and commonly used MAs are the simple moving average (SMA), which is the simple average of a security over a defined number of time periods, and the exponential moving average (EMA), which gives bigger weight to more recent prices. The most common applications of MAs are to identify the trend direction and to determine support and resistance levels. While MAs are useful enough on their own, they also form the basis for other indicators such as the Moving Average Convergence Divergence (MACD).

Moving Average (MA)

BREAKING DOWN 'Moving Average - MA'

As an SMA example, consider a security with the following closing prices over 15 days:

Week 1 (5 days) – 20, 22, 24, 25, 23

Week 2 (5 days) – 26, 28, 26, 29, 27

Week 3 (5 days) – 28, 30, 27, 29, 28

A 10-day MA would average out the closing prices for the first 10 days as the first data point. The next data point would drop the earliest price, add the price on day 11 and take the average, and so on as shown below.

SMA calculation

As noted earlier, MAs lag current price action because they are based on past prices; the longer the time period for the MA, the greater the lag. Thus a 200-day MA will have a much greater degree of lag than a 20-day MA because it contains prices for the past 200 days. The length of the MA to use depends on the trading objectives, with shorter MAs used for short-term trading and longer-term MAs more suited for long-term investors. The 200-day MA is widely followed by investors and traders, with breaks above and below this moving average considered to be important trading signals.

MAs also impart important trading signals on their own, or when two averages cross over. A rising MA indicates that the security is in an uptrend, while a declining MA indicates that it is in a downtrend. Similarly, upward momentum is confirmed with a bullish crossover, which occurs when a short-term MA crosses above a longer-term MA. Downward momentum is confirmed with a bearish crossover, which occurs when a short-term MA crosses below a longer-term MA.

RELATED TERMS
  1. Simple Moving Average - SMA

    A simple, or arithmetic, moving average that is calculated by ...
  2. Exponential Moving Average - EMA

    A type of moving average that is similar to a simple moving average, ...
  3. Lagging Indicator

    1. A measurable economic factor that changes after the economy ...
  4. Death Cross

    A crossover resulting from a security's long-term moving average ...
  5. Golden Cross

    A crossover involving a security's short-term moving average ...
  6. Moving Average Ribbon

    A technique used in technical analysis to identify changing trends. ...
Related Articles
  1. Trading Systems & Software

    How To Apply Moving Averages With MetaTrader 4: Moving Averages

    A moving average (MA) is a type of technical indicator that is used to show the average value of a security's price over a specified time period. MAs are commonly used with time series data to ...
  2. Technical Indicators

    How To Use A Moving Average To Buy Stocks

    The Moving Average indicator is one of the most useful tools to trade and analyze financial markets.
  3. Technical Indicators

    The Top Technical Indicators For Commodities Investing

    Traders can use "the usual suspects" (standard indicators for trend trading) when it comes to choosing indicators for investing in commodities. Here's how.
  4. Active Trading Fundamentals

    Weighted Moving Averages: The Basics

    We take a closer look at the linearly weighted moving average and the exponentially smoothed moving average.
  5. Active Trading

    Moving Averages: Factors To Consider

    By Casey Murphy, Senior Analyst ChartAdvisor.com Data Used in Calculation Most moving averages take the closing prices of a given asset and factor them into the calculation. We thought it would ...
  6. Forex

    Moving Average Flavors

    Get a better understanding of moving averages in this walkthrough.
  7. Mutual Funds & ETFs

    Using Moving Averages to Buy ETFs

    Learn how to use moving averages to enter and exit trades in ETFs, and understand some popular technical setups using moving averages.
  8. Active Trading

    Moving Averages: What Are They?

    By Casey Murphy, Senior Analyst ChartAdvisor.com Among the most popular technical indicators, moving averages are used to gauge the direction of the current trend. Every type of moving average ...
  9. Trading Strategies

    Selecting Mergers & Acquisitions Advisories For Small Businesses

    Mergers and acquisitions advisories aren't just for big players. Many advisory firms cater to small and medium businesses.
  10. Forex

    Moving Averages

    The use of moving averages in technical analysis
RELATED FAQS
  1. Are exponential moving averages more effective than simple or weighted moving averages?

    Learn about different types of moving averages, as well as moving average crossovers, and understand how they are used in ... Read Answer >>
  2. What are the most common periods used in creating Moving Average (MA) lines?

    Learn the most commonly selected periods used by traders and market analysts in creating moving averages to overlay as technical ... Read Answer >>
  3. What are the main advantages of using Moving Averages (MA)?

    See why moving averages have proven to be advantageous for traders and analysts and useful when applied to price charts and ... Read Answer >>
  4. Why is the Exponential Moving Average (EMA) important for traders and analysts?

    Discover why chartists and technical analysts might use an exponential moving average (EMA) instead of a simple moving average ... Read Answer >>
  5. What is a common strategy traders implement when using the Moving Average (MA)?

    Learn about a basic moving average strategy predicated on the relationship between a security's price action and its moving ... Read Answer >>
  6. How do I use Moving Average (MA) to create a forex trading strategy?

    Learn a simple forex trading that uses multiple moving averages and is designed to create low-risk, high-reward trading opportunities. Read Answer >>
Hot Definitions
  1. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  6. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
Trading Center