The chart below shows Moving Averages (MAs) for 20, 50 and 100 days. You can see the Mas generally moving with the price, and the price crossing the MAs when it changes direction. MAs are what we call a lagging indicator, meaning they follow the trend. You can also notice that the longer MA is a lot smoother than the shorter MAs – this is because it averages out more prices and is less sensitive to new prices as they only make up a small part of the average.
There are three types of MAs; the Simple Moving Average (SMA), the Exponential Moving Average (EMA), and the Weighted Moving Average (WMA). The SMA is a straightforward average of the last “x” prices. For example, a 10-day SMA shows the average price of the last 10 days. So if we calculate the average of the last 10 days for every day over a long period of time and we connect the values, the SMA line is created.