What is the Moving Average Indicator?

A moving average is a technical indicator that calculates the average price of an asset over a specific number of periods. As each new period is added, the oldest price is removed, so the average continuously “moves” with the market. 

For example:

• A 20-day moving average calculates the average closing price of the most recent 20 trading days.

Primarily, the moving average indicator is used to assess “trend direction”. A rising moving average can indicate that prices have generally been moving upward, while a declining moving average can indicate downward price movement. The two major types of moving average indicators are:

What Could be the Potential Moving Average Trading Strategy for Beginners?

To develop a moving average trading strategy, several traders usually:

• Observe the relationship between price and a moving average

or

• Compare two moving averages

For example, a shorter-term moving average crossing above a longer-term moving average is a potential indication of changing momentum. 

However, moving averages are based on historical prices and can lag during rapidly changing markets. 

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