Moving average

A moving average is a technical analysis indicator that calculates the average price of an asset over a specified number of periods. For instance, a 50-period simple moving average sums the closing prices of the last 50 candles and divides by 50. As each new candle forms, the oldest price is dropped, and the newest price is added, causing the average to continuously update and smooth out short-term price fluctuations.

While moving averages help identify trend direction, they are lagging indicators, meaning they reflect past price action, not future. Traders often use them to confirm trends or identify dynamic support and resistance levels. Relying solely on moving average crossovers for trade signals can lead to frequent false entries in choppy markets, increasing transaction costs like spread and commission, and eroding capital.