Loading the player...

What is a 'Moving Average - MA'

A moving average (MA) is a widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random price fluctuations. It is a trend-following, or lagging, indicator because it is based on past prices.

The two basic and commonly used moving averages 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 greater weight to more recent prices. The most common applications of moving averages are to identify the trend direction and to determine support and resistance levels. While moving averages are useful enough on their own, they also form the basis for other technical indicators such as the Moving Average Convergence Divergence (MACD).

BREAKING DOWN 'Moving Average - MA'

A moving average (MA) is calculated in different ways depending on its type.

Let's look at a simple moving average (SMA) of 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 moving average 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.

Table showing how a simple moving average is calculated.

How to Use Moving Averages

Moving averages lag current price action because they are based on past prices; the longer the time period for the moving average, 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 moving average to use depends on the trading objectives, with shorter moving averages used for short-term trading and longer-term moving averages more suited for long-term investors. The 50-day and 200-day MAs are widely followed by investors and traders, with breaks above and below this moving average considered to be important trading signals.

[ Moving averages are just one technical indicator that traders use to identify profitable trade opportunities. If you're interested in learning about more, check out Investopedia's Technical Analysis Course, where we cover both basic and advanced technical analysis, chart reading skills, and the technical indicators you need to succeed. The course includes over five hours of on-demand video, exercises, and interactive content built by an experienced market technician. ]

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

RELATED TERMS
  1. Linearly Weighted Moving Average

    A type of moving average that assigns a higher weighting to recent ...
  2. Displaced Moving Average

    A moving average that has been adjusted forward or back in time ...
  3. Guppy Multiple Moving Average - ...

    The Guppy Multiple Moving Average (GMMA) is a technical indicator ...
  4. Technical Indicator

    Technical indicators are mathematical calculations based on the ...
  5. Confirmation

    Confirmation refers to the use of an additional indicator or ...
  6. Moving Average Chart

    A tool used by technical analysts to track the price movements ...
Related Articles
  1. Trading

    How To Use A Moving Average To Buy Stocks

    The Moving Average indicator is one of the most useful tools for trading and analyzing financial markets.
  2. Trading

    Simple Vs. Exponential Moving Averages

    These technical indicators help investors to visualize trends by smoothing out price movements.
  3. Trading

    The 7 Pitfalls of Moving Averages

    While moving averages can be a valuable tool, they are not without risk.
  4. Trading

    Do Adaptive Moving Averages Lead To Better Results?

    These complex indicators can help traders interpret trend changes, but are they too good to be true?
  5. Trading

    Trend trading: The 4 most common indicators

    Learn about the top indicators and tools trend traders use to establish when trends exist and find entry and exit points.
  6. Trading

    Using Technical Indicators To Develop Trading Strategies

    Unfortunately, there is no perfect investment strategy that will guarantee success, but you can find the indicators and strategies that will work best for your position.
RELATED FAQS
  1. 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 >>
  2. What's the difference between moving average, weighted moving average and exponential ...

    Moving averages are one of the most popular tools used by active traders to measure momentum. In this FAQ, we'll take a look ... Read Answer >>
  3. What are the best technical indicators to complement the Exponential Moving Average ...

    Utilize additional technical indicators to complement and improve a basic trading strategy that relies on exponential moving ... Read Answer >>
  4. What are the most common market indicators forex traders follow?

    Learn the most common technical indicators that forex traders and currency market analysts utilize to predict likely market ... Read Answer >>
  5. Why is the 50-period simple moving average (SMA) so popular among traders and analysts?

    Learn the various purposes the 50-period simple moving average (SMA) serves, and understand why it is commonly used by traders ... Read Answer >>
Hot Definitions
  1. Treasury Yield

    Treasury yield is the return on investment, expressed as a percentage, on the U.S. government's debt obligations.
  2. Return on Assets - ROA

    Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
  3. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  4. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  5. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  6. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
Trading Center