Day-to-day price is noisy. A moving average takes the mean of the last N closes and slides it through time: it smooths the noise and reveals the underlying direction.
Which period should you choose?
- 20-day MA: short-term trend, responsive but noisy.
- 50-day MA: medium-term trend, closely watched by professionals.
- 200-day MA: the long-term arbiter. A price above it is often described as a “structural uptrend”.
Crossovers
When a short average crosses above a long one, it is called a bullish crossover (the famous “golden cross” for 50/200); the reverse is the “death cross”. These signals are popular… and lagging by construction.
The structural flaw
A moving average is a LAGGING indicator: it confirms a trend after the fact, it never anticipates one. In a trendless market (a range) it generates many false signals. It is a trend tool, not a timing tool.
À retenir
- ✓A moving average smooths noise and gives the underlying trend a visible shape.
- ✓200-day MA = long-term reference; 50-day MA = medium term.
- ✓A lagging indicator: excellent in a trend, poor in a range.