A Moving Average (MA) calculates the average price over a specified period, creating a smooth line that helps identify trend direction.
Types
Simple Moving Average (SMA)
SMA = Sum of closing prices / Number of periods
Exponential Moving Average (EMA)
Gives more weight to recent prices — reacts faster to changes.
Common Periods
| Period | Use |
|---|---|
| 20 EMA | Short-term trend |
| 50 SMA | Medium-term trend |
| 100 SMA | Long-term trend |
| 200 SMA | Major trend (institutional) |
Trading Signals
Golden Cross (Bullish)
- Short MA crosses above long MA
- Signal: Buy / Uptrend starting
Death Cross (Bearish)
- Short MA crosses below long MA
- Signal: Sell / Downtrend starting
Support & Resistance
Moving averages often act as dynamic support/resistance:
- In uptrends: Price bounces off MA from above
- In downtrends: Price rejected by MA from below
Key Points
- MAs are lagging indicators (based on past data)
- Use multiple MAs for confirmation
- 200 SMA is the most watched by institutions