Moving Average (MA)

A moving average (MA) takes a fixed window of past closing prices — say, the last 20 days — adds them up, and divides by 20. The next day, it drops the oldest price, adds the newest, and recalculates. Because the window "moves" forward in time, it always reflects the most recent stretch of history chosen. The result is a smoother line on a price chart that filters out the daily noise inherent in raw OHLC data.

The two most common types are the simple moving average (SMA), which weights all periods equally, and the exponential moving average (EMA), which gives more weight to recent prices so it reacts faster to new data. Traders typically watch moving averages over different timeframes — 20-day, 50-day, and 200-day are widely quoted — not because any one is "correct" but because they describe trends at different speeds. The guide on reading price charts explains how these lines appear in practice.

A critical point: a moving average is descriptive, not predictive. It summarizes where prices have been, not where they are going. It also lags — because it is built from past data, it always trails actual price by definition. During sharp market moves, the gap between current price and the moving average can widen considerably, which is itself a piece of information about how unusual the move is relative to recent history. You can see volatility concepts alongside MAs in the volatility guide.