A moving average calculates the average closing price over a fixed number of past periods, updating each day as the window rolls forward. A Simple Moving Average (SMA) weights every period equally; an Exponential Moving Average (EMA) weights recent prices more heavily, making it react faster to new data. The 50-day and 200-day SMAs are the most widely watched levels in equity markets.
The formula
Sum of Closing Prices (N periods)N
= Simple Moving Average
Why it matters
- —In an uptrend, a rising moving average often acts as dynamic support — price pulls back to it and bounces, a common entry point for trend traders.
- —Moving averages are lagging indicators: they confirm a trend after it's underway rather than predicting it, which is why crossovers (like the Golden Cross) often trigger after much of a move has already happened.
- —EMA reacts faster to new prices than SMA, making it more useful for shorter-term setups and as a building block for indicators like MACD.
How to read it
| Price above a rising MA | Confirms an uptrend |
| Price below a falling MA | Confirms a downtrend |
| Price crossing through a flat MA | Trend may be losing direction |