Level 5
Moving averages
By the end of this level you will know how a moving average is calculated, how it summarises a trend, and why it always arrives late.
In this level
- What is a moving average?A moving average (MA) is the average of the closing prices of the last N periods, updated as each new candle arrives — hence "moving". A 20-day average, for example, sums the last…
- How price relates to its averageTwo simple observations come from an average. First, position: price above the average means the market trades higher than its own N-period mean — traditionally taken as a mark of…
- CrossoversPut two averages of different lengths on the same chart and they will cross from time to time. The shorter average crossing above the longer one is traditionally read as upward…
- Lag: what the average cannot sayThe moving average has one structural flaw, and it comes straight from its definition: it looks backward. The average summarises the last N periods; a sharp change happening today…