Moving Average (MA)
What is a moving average?
Moving average (MA) is a technical indicator for investors to use to determine the direction of a price trend. It is often one of the first indicators that traders will add to their charts and will serve as a measure on its own or in comparison with other indicators. A moving average sums up the data points of an asset over a specific time period and divides the total by the number of data points to arrive at an average. Investors use the moving average to examine support and resistance by evaluating the movements of an asset’s price.
How does MA work?
MAs are often used to determine trend direction. If the MA is moving up, the trend is up. If the MA is moving down, the trend is down. A MA200 (200-day MA) is a common proxy for the long-term trend. MA50 (50-day MA) is typically used to gauge the intermediate trend. Shorter period MAs can be used to determine shorter term trends.
- MAs are commonly used to smooth price data and technical indicators. The longer the period of the MA, the smoother the result, but the more lag that is introduced between the MA and the source.
- Price crossing MA is often used to trigger trading signals. When prices cross above the MA, you might want to go long or cover short; when they cross below the MA, you might want to go short or exit long.
- MA crossing is another common trading signal. When a short period MA crosses above a long period MA, you may want to go long. You may want to go short when the short-term MA crosses back below the long-term MA.