# What is Moving Average?

*Moving Average (MA)* is the average value of shares' prices of the given period. Average in Moving Average can be as simple as Arithmetic Mean or more complex like Exponential Average or Weighted Average.

## Notion

Generally, Moving Average is specified in abbreviation with its parameters (period length, period unit, type) like Mathematical functions. e.g., `MA(4, day, close)`

represents the average value of the last four days' close prices.

It is in practice to use "close prices," "day period" and "simple arithmetic mean" as default configuration unless specified. `MA(3)`

can be interpreted as the simple mean price of the last three days' close prices.

It is also in practice to specify the period first followed by *Moving Average abbreviation*. For example, `30 EMA`

is the same as `EMA(30)`

i.e. last 30 days exponential average price.

## Using Moving Average in Chart Tools

*Moving Average* is plotted as a line in chart tools. Any point value on MA line represents the average of the `last n`

price points (where `n = period length`

). We are picking TradingView for MA demonstration.

MA *period unit* value is inferred from chart interval settings i.e. if the chart is of 1-hour interval, then MA(9) would be a moving average of 9 hours. *Period length*, *price type* (default: close), line color, and line thickness are configurable.

You can select any arithmetic moving average (MA/SMA), exponential moving average (EMA), or weighted moving average(WMA):

- For SMA: Indicators > Moving Average
- For EMA: Indicators > Moving Average Exponential
- For WMA: Indicators > Moving Average Weighted

## MA as an indicator

Moving Average smoothen the price volatility of a given period. It acts as a trading tool to determine the trend direction of the share price. If a share is traded above MA line, then the trend is an *uptrend* else a *downtrend*.

## Fast-Slow Moving Averages

Some traders prefer using two MA lines of different period lengths in conjunction for estimating trend direction. Such systems of MA lines are usually termed as *Fast-Slow Moving Averages*. e.g., 20 MA (fast)- 50 MA (slow), 50 MA - 200 MA. The crossover of the fast and slow MA lines generates Buy-Sell signals.

## Drawbacks

It is a *lagged indicator*. The more the period length, the more it is slow in generating any indication.
It may not work well with high price fluctuations and may produce false signals.

## Summary

*Moving Average is the average of the shares prices taken for a period*. It is used to estimate trend direction. The combinations of Moving Averages can be used to generate buy-sell signals. Moving Average may not be smoothened if the price is volatile which may lead to false signals.

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