Moving Average

A moving average takes a stock's closing prices over a set number of recent periods — say, 20 or 50 days — and averages them into a single number that updates, or "moves," as each new period closes and the oldest one drops off. The result is a smoother line that filters out day-to-day noise and makes the underlying trend easier to read. A shorter moving average reacts faster to new price moves and tracks the price more closely; a longer one is smoother and lags further behind. Traders commonly watch where the price sits relative to a moving average, and watch for a shorter-term average crossing a longer-term one — a shorter average crossing above is often read as bullish, crossing below as bearish. A moving average is calculated entirely from past prices, so it always lags the current price to some degree and has no ability to anticipate a sudden reversal.