What is a moving average? Simple and exponential averages explained
By SendPay Business · · 2 min read
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A moving average is the average price over a set number of recent periods, recalculated as each new price arrives. It smooths out day-to-day noise so the overall direction of a price is easier to see.
Simple moving average (SMA)
Add up the last N closing prices and divide by N. A 20-day SMA is the average of the last 20 daily closes; tomorrow the oldest drops out and the newest comes in, so the line moves along with the price.
Exponential moving average (EMA)
An EMA gives more weight to recent prices, so it reacts faster. Each day it takes the new close times a weight k, plus the previous EMA times (1 − k), where k = 2 ÷ (N + 1). It is usually started from an SMA.
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How charts use them
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To show the trend
price above a rising average suggests an uptrend.
Crossovers
some watch for a short average crossing a long one, such as the 50-day and 200-day.
The limits
Moving averages lag, because they are built from past prices. Longer averages are smoother but slower, shorter ones are quicker but give more false signals. They describe what prices have done, not what they will do.
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Questions people ask
How do I work out a moving average?
Paste prices into the free calculator for SMA and EMA.
Moving average calculator →What is a candlestick chart?
How charts show each period's open, high, low and close.
Candlestick charts →Read next
Spotted a mistake or something out of date? and we'll fix it. How our guides are made
This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. Other companies named in this guide are reference points only and are not affiliated with SendPay Business.