Moving averages are one of the most fundamental and practical tools in technical analysis. Whether you are a short-term trader or a long-term investor, understanding the logic behind MA is essential. This article will start from practical application to provide an in-depth analysis of this core indicator.
What exactly is a moving average?
A moving average (MA) is calculated by summing the closing prices over a specific period and dividing by the number of days in that period, resulting in an arithmetic mean. In simple terms, it reflects the average price level over a certain period.
The calculation formula is straightforward: N-day MA = Sum of closing prices over N days / N days
For example, a 5-day moving average is the average of the closing prices over the past 5 trading days. As time progresses, a new average is generated each day, and connecting these averages forms the moving average line we see.
The greatest value of MA lies in helping investors gain insight into price trends. By observing the arrangement of moving averages of different periods, you can judge