Smooth the price across a span:an average shows the trend's rough plan.
A technical indicator that smooths price data by calculating the average closing price over a set number of periods.
Common types include simple (SMA) and exponential (EMA) moving averages.
In plain words
A moving average is the average of the most recent prices, usually closing prices, over a set number of periods. Each time a new period ends the oldest price drops out and the newest comes in, so the average moves along with the chart as a smoothed line.
See it move
Price has crossed above Moving average
Why it matters
It filters out small swings so that the general direction is easier to see. The smoothing has a cost: the line reacts after the price has moved, and the more periods it covers the later it reacts.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
A 5-period simple moving average is calculated on closes of 10, 12, 11, 13 and 14, and then the next close is 15.
- 1Sum10 + 12 + 11 + 13 + 14 = 60
- 2Average60 ÷ 5 = 12
- 3New window 12, 11, 13, 14, 15sum 65, average 65 ÷ 5 = 13
The average moves from 12 to 13 as the oldest close, 10, is replaced by the newest, 15.
A common mistake
A moving average is sometimes read as a level that the price must respect. It is only an average of past prices: a simple one weights every period equally, while an exponential one gives more weight to recent periods and so turns sooner.
Check yourself
Learn more
- Academy lessonSupport and resistanceWhat support and resistance are, how horizontal levels, trendlines and moving averages are drawn, and what breakouts and false breakouts look like.
- Academy lessonMoving averagesSimple and exponential moving averages, how each is calculated, what the golden cross and death cross describe, and how the period changes behaviour.
- ExplainerThe golden ratio in technical analysis: how Fibonacci tools are builtRetracements, extensions, fans and time zones all come from one number, 1.618. This is how each tool is constructed, how traders read it, and where its limits lie.
Educational information, not investment advice or a recommendation to trade.