A technical indicator that calculates the average closing price over a specific number of periods.
A moving average (MA) smooths out price data by creating a constantly updated average. The two main types are Simple Moving Average (SMA), which weights all periods equally, and Exponential Moving Average (EMA), which gives more weight to recent prices. Common periods include 20, 50, and 200. Price above the MA suggests an uptrend; below suggests a downtrend.
Moving averages are one of the most widely used indicators because they simplify trend identification. The 200-day moving average is considered the dividing line between bull and bear markets. MAs also act as dynamic support and resistance levels where price often reacts.
A stock is trading at $55 and its 50-day SMA is at $52. Since price is above the MA, the intermediate trend is bullish. During a pullback, price drops to $52 and bounces off the moving average, confirming it as dynamic support.
The moving average (yellow) smooths out price noise, making the trend direction clear. Price above the MA confirms a bullish trend.