Overview The Moving Average is a lagging indicator, or trend following formula, that smoothes the volatile swings in a market. MAs are used to track the progress of a trend and to signal when a trend has ended or reversed. The MA attempts to tone down the fluctuations of market prices to a smoothed trend, so that distortions are reduced to a minimum.
MAs help in tracking trends and signalling reversals.
You could think of the MA as a curved trendline, fitting itself to the market. Interpretation Signals to buy or sell are generated when the price crosses the MA or when one MA crosses another, in the case of multiple MAs. As with trendlines, the MA often provides an area of support and resistance. Since the MA is a lagging indicator , a crossover will usually signal a trend reversal well after a new trend has begun and is used largely for confirmation. Generally speaking, the longer the time span covered by an MA, the greater the significance of a crossover signal.