Definition
A moving average is a line drawn on a price chart by repeatedly averaging the closing price over a fixed number of recent periods. As each new period arrives, the oldest value drops off and the newest is added, so the line moves forward in time. The result smooths out short-term noise and reveals the underlying direction of price.
The two most common forms are the simple moving average, which weights every period equally, and the exponential moving average, which gives more weight to recent prices and therefore reacts faster. The length of the window, such as 20, 50, or 200 periods, controls how sensitive the line is.
Why it matters
How it works
A rising moving average indicates that recent prices are higher than older ones, confirming an uptrend; a falling one confirms a downtrend. Price crossing above or below the line is a simple directional signal, though it lags because the average is built from past data.
Traders also watch the relationship between two averages. When a shorter average crosses above a longer one, it is called a bullish crossover, and the reverse is bearish. In chart-pattern work, moving averages help confirm whether a breakout aligns with the broader trend or fights against it.