Simple moving average

A simple moving average is the average closing price of a stock over a set number of periods, recalculated each day as the window of time it covers slides forward. It is one of the most basic and widely used tools in technical analysis, valued for smoothing out the day-to-day noise in a stock's price so that the underlying trend becomes easier to see.

The calculation simply adds up the closing prices over the chosen number of periods, commonly 50 days or 200 days for longer-term trend analysis, or 10 or 20 days for shorter-term views, and divides by that number of periods. Each new day, the oldest price in the window drops off and the newest one is added, so the average shifts, or "moves," along with the stock's price over time. A longer moving average reacts more slowly to recent price changes and produces a smoother line, while a shorter one tracks price more closely but generates more frequent signals.

The formula is:

Traders use simple moving averages in several common ways: as a visual guide to the prevailing trend, since price trading above a rising average is generally read as bullish and below a falling average as bearish; as dynamic support or resistance levels, where a stock's price often reacts when it approaches a widely watched average like the 50-day or 200-day line; and as the basis for crossover signals, where a shorter average crossing above or below a longer one, such as in a golden cross or death cross, is used to flag a potential change in trend direction.