Definition
A moving average (MA) is a technical indicator that reduces short-term fluctuations to show the direction of recent prices. The term covers several calculation methods. A simple moving average gives equal weight to observations in its window, while an exponential moving average gives greater weight to more recent data.
How It Works
For a three-period simple average with closing prices of 10, 11, and 12, the value is 11. When a new close of 13 arrives, the window becomes 11, 12, and 13, and the average rises to 12. A 20-period setting on an hourly chart therefore differs from a 20-period setting on a daily chart.
Key Considerations
Longer windows usually smooth more but react more slowly; shorter windows respond faster and can produce more false turns. Price crossings or average crossovers describe historical relationships, not guaranteed future direction. Confirm the averaging method, data input, and chart interval before comparing indicators from different sources.