Moving Average (SMA)
A line drawn from the average of closing prices over a period — the basic tool for showing a price trend smoothly.
In plain terms
Daily prices are jumpy, making the big flow hard to see. A moving average takes the average of the last few days' (e.g. 20) closes and makes a smooth line.
It smooths the jumpiness to show at a glance whether the "big flow" is heading up or down. The longer the period (200 days, etc.), the slower it moves, representing a longer trend.
What it tells you
When price is above a long-term moving average (e.g. the 200-day), the big flow is commonly seen as an uptrend; below it, a downtrend.
Viewing lines of several periods (20, 50, 200) together lets you gauge short-, mid-, and long-term trends on one screen, making it the most basic chart tool.
Formula
SMA(n) = average of the last n days' closing prices (the 20-, 50-, and 200-day lines are often viewed together)
What high or low means
A price rising above the 200-day line is read as a long-term uptrend. When a short line (e.g. 50-day) breaks above a long line (200-day), it is often read as an up-turn signal (golden cross).
Conversely, when a short line breaks below a long line, it is read as a down-turn signal (death cross).
A moving average is an average of past prices, so it is always a beat late (lagging). When a trend turns sharply, it signals the turn belatedly.
In a sideways market without direction, the lines often tangle and the signals lose meaning.
Like RSI and MACD, it looks only at price action, not company value. It is for trend reference; it is not by itself a buy/sell suggestion.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see Moving and other financial metrics alongside the sector average.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.