A moving average smooths a stock's price into a single line by averaging the closing prices of the last set number of days. A 50-day moving average, for example, is the average close of the last 50 sessions, updated every day. The line filters out daily noise so the direction of the trend is easier to see.
On this page5 sections
Simple and exponential
- Simple moving average (SMA): every day counts equally.
- Exponential moving average (EMA): recent days count more, so the line reacts faster.
Neither is better. Pick one style and use it consistently.
The three averages most traders watch
- 20-day: the short-term trend. Strong momentum stocks often pull back to it.
- 50-day: the medium-term trend and a common pullback zone for swing trades.
- 200-day: the long-term trend. Many traders only look for long trades in stocks above it.
How swing traders use them
- Trend filter: price above a rising 50-day and 200-day suggests a healthy uptrend.
- Order of the lines: 20 above 50 above 200 is a classic sign of strength.
- Pullback zones: a rising average often acts as a soft support area. See our note on the pullback entry.
A worked example (hypothetical chart)
A hypothetical stock trades at $64, above its rising 20-day ($61), 50-day ($57) and 200-day ($48). It eases back to $57.30, touching the 50-day near an old breakout level, then turns up. The average is part of the zone, but the stop goes below the swing low and the zone, not exactly at the line.
Keep in mind
- Moving averages lag price; they describe the trend, they do not predict it.
- In sideways markets, price crosses averages constantly. That is a signal to be more selective.
Education only, not financial advice.
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