Moving Average (MA): Purpose, Uses, Formula, and Examples
What Is a Moving Average (MA)?
In finance, a moving average (MA) is a stock indicator commonly used in technical analysis. The reason for calculating the moving average of a stock is to help smooth out the price data by creating a constantly updated average price.
By calculating the moving average, the impacts of random, short-term fluctuations on the price of a stock over a specified time frame are mitigated. Simple moving averages (SMAs) use a simple arithmetic average of prices over some timespan, while exponential moving averages (EMAs) place greater weight on more recent prices than older ones over the time period.
Understanding a Moving Average (MA)
Moving averages are calculated to identify the trend direction of a stock or to determine its support and resistance levels. It is a trend-following or lagging, indicator because it is based on past prices.
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