This causes the average to move along the time scale. Old data is dropped as new data comes available. As its name implies, a moving average is an average that moves. A 5-day simple moving average is the five day sum of closing prices divided by five. Most moving averages are based on closing prices. Simple Moving Average Calculation A simple moving average is formed by computing the average price of a security over a specific number of periods. Here's a chart with both an SMA and an EMA on it: These moving averages can be used to identify the direction of the trend or define potential support and resistance levels. The two most popular types of moving averages are the Simple Moving Average (SMA) and the Exponential Moving Average (EMA). They also form the building blocks for many other technical indicators and overlays, such as Bollinger Bands, MACD and the McClellan Oscillator. Despite this lag, moving averages help smooth price action and filter out the noise. Moving averages lag because they are based on past prices. They do not predict price direction, but rather define the current direction with a lag. ![]() Introduction Moving averages smooth the price data to form a trend following indicator.
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