What is Moving Average?
A moving average is a technical indicator that smooths out price data by creating a constantly updated average price over a specific time period, commonly 20, 50, or 200 days.
Moving Average Explained
Moving averages help identify trend direction and potential support/resistance levels. The two main types are Simple Moving Average (SMA) which weights all prices equally, and Exponential Moving Average (EMA) which gives more weight to recent prices. Crossovers between different period moving averages are popular trading signals.
Real-World Example
A stock's 50-day moving average crosses above its 200-day moving average — this 'Golden Cross' is considered a bullish signal. Conversely, when the 50-day crosses below the 200-day, it's called a 'Death Cross' and signals potential further declines.
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