A moving average is a technical indicator that smooths out price data by creating an average price over a specific number of periods. It’s calculated by adding up the closing prices for a set number of periods and then dividing by that number. The result is plotted as a line on the chart, which helps to identify the overall trend direction of an asset.
There are various types of moving averages, such as the Simple Moving Average (SMA) and the Exponential Moving Average (EMA), each with its own calculation method and sensitivity to price changes. Traders often use moving averages to identify support and resistance levels, generate buy or sell signals, and confirm trend reversals.
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