Moving Average
Also known as: Simple Moving Average, SMA
An indicator that smooths out price data by creating a constantly updated average price over a specific number of periods.
Plain-English Meaning
A Moving Average takes the erratic, jagged price movement and turns it into a smooth, flowing line. It helps you see the underlying trend without the distraction of short-term price spikes.
Why It Matters
By looking at whether the price is above or below a moving average, traders can quickly identify the current trend direction. They also serve as dynamic support and resistance levels.
Simple Example
A 50-day moving average calculates the average closing price over the last 50 days. If the current price is consistently staying above this line, the asset is generally considered to be in an uptrend.
This educational example uses selected assumptions for reference calculation purposes. Real conditions may vary by broker, exchange, or instrument.
Beginner Mistake
Using too many moving averages on a single chart. This creates a messy "spaghetti chart" that causes confusion and "analysis paralysis" rather than clear trading signals.