Moving Average

Overview

The Moving Average (MA) is one of the most widely used indicators in technical analysis. It calculates the average closing price over a specified period, connecting these values into a continuous line. This smooths out short-term price noise and reveals the overall trend direction.

There are two primary types: the Simple Moving Average (SMA) and the Exponential Moving Average (EMA). SMA calculates a straightforward average of prices, while EMA applies greater weight to recent prices, making it more responsive to current conditions.

Calculation & Theory

Simple Moving Average (SMA)

SMA = (P₁ + P₂ + P₃ + ... + Pₙ) / n
P = closing price for each period
n = number of periods

For a 20-day SMA, you sum the closing prices of the past 20 days and divide by 20. Each new day, the oldest price drops off and the newest is added.

Exponential Moving Average (EMA)

EMA = Close × k + Previous EMA × (1 - k)
k = 2 / (n + 1)
n = number of periods

The EMA reacts more quickly to recent price changes than the SMA. For this reason, short-term traders often prefer the EMA.

How to Read

Trend Direction

• Price above the MA → Uptrend
• Price below the MA → Downtrend
• MA sloping up → Trend continuation likely
• MA flat → Possible ranging market

Golden Cross & Death Cross

• Golden Cross: Short-term MA crosses above the long-term MA → Bullish signal
• Death Cross: Short-term MA crosses below the long-term MA → Bearish signal

How to Read

OANDA:USDJPY

Commonly Used Periods

Market Psychology

Limitations

Related Indicators

• MACD — Measures the convergence and divergence of moving averages
• Bollinger Bands — Adds standard deviation bands around a moving average