Trading glossary
What is a moving average?
A moving average is the average closing price over a set number of candles, plotted as a line that smooths out price.
A simple moving average (SMA) weights every candle in its period equally. An exponential moving average (EMA) gives more weight to recent candles, so it reacts faster. Common periods include 20, 50 and 200.
Moving averages lag price by design. They are used to judge trend direction, as dynamic support and resistance, and in crossovers between a fast and a slow average.
How traders use it
- Use the slope of a longer average, such as the 200, as a quick read of the trend.
- Watch how price reacts when it pulls back to a widely followed average.
- Treat crossovers as slow confirmations, not early signals.
Example
A stock's 200-day simple moving average sits at 85 and is rising. Price pulls back from 98 to 86, holds just above the average and turns higher. Many traders read that as the long-term trend acting as support.
Frequently asked questions
What is a golden cross?
The 50-period moving average crossing above the 200-period. The opposite is a death cross.
SMA or EMA?
An EMA reacts faster and gives earlier but noisier signals. An SMA is smoother and slower.
Related terms
Educational content only, not financial advice. Chart patterns describe probabilities, not certainties, and every pattern can fail. See our disclaimer.