A moving average (MA) is a commonly used technical analysis indicator in technical analysis.
It is very important to realize that the moving average is a lagging indicator, not a leading indicator< because it is based on past stock prices.
Types Of Moving Averages
There are 2 basic types of moving averages, Simple and Exponential.
A Simple Moving Average (SMA) uses a simple average of stock prices over a defined time span.
An Exponential Moving Average (EMA) is weighted more heavily on recent stock prices over a defined time span.
Moving Averages Length
A moving average can be set for very short time periods even down to a minute.
For most long-term investors, it is very common to use 2 moving averages, the 50-day moving average and the 200-day moving average.
How To Use Moving Averages
There are 2 common ways to use moving averages.
To identify the trend direction
To determine support and resistance levels.
When Moving Averages Collide
Below are a few stocks that have the 2 moving averages very close to each other or possibly intersecting.
This can be a very telling signal.