The most fundamental trend indicator. Moving averages smooth out price data to visually reveal the direction of a trend.
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.
Formula
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.
Formula
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
OANDA:USDJPY
| Period | Use Case |
|---|---|
| 5, 10 | Short-term trend |
| 20, 25 | Medium-term trend (~1 month of trading days) |
| 50 | Medium to long-term trend |
| 100 | Long-term trend |
| 200 | The big picture — institutional reference point |
Related Studies
MACD (Moving Average Convergence Divergence)
A trend oscillator that graphs the 'difference' between two moving averages. Signal crosses, the zero line, divergence — how it works, and the lag trap everyone falls into.
Bollinger Bands
A moving average wrapped in a standard-deviation envelope. Squeeze, band-walk, the real meaning of ±2σ — and the worst misuse: 'fade the touch'.