Ticker&TapeMoving averages: the basics
A moving average smooths out daily noise and shows the direction of the trend. It is one of the simplest and most useful tools on a chart, and growth traders watch a handful of them every day.
What a moving average is
A moving average is the average closing price over a set number of periods. A 50-day moving average adds the last 50 closes and divides by 50. Each new day, the oldest close drops out and the newest is added, so the line moves along with price.
A simple moving average (SMA) weights every day equally. An exponential moving average (EMA) gives more weight to recent days, so it reacts faster. Neither is better. EMAs suit short-term timing; SMAs are the standard for the 50 and 200-day lines.
The common ones
The Ticker&Tape chart shows the 50 and 200-day lines by default. You can add any SMA or EMA with the Indicators button.
- 10-day: very short term, tracks the strongest stocks in fast advances.
- 21-day (often an EMA): a popular short-term trend guide.
- 50-day: the key intermediate-term line. See the 50-day line.
- 200-day: the long-term trend. See the 200-day line.
- 10-week and 40-week on the weekly chart: roughly equal to the 50-day and 200-day.
Slope matters
The direction of the line tells you as much as where price sits. A rising 50-day line means the average buyer over the last ten weeks is in profit. A flat line means the stock is going sideways. A falling line means recent buyers are losing money and may sell into rallies.
A stock above a falling 200-day line is not in a real uptrend yet. A stock pulling back to a rising 50-day line is a very different situation from one sinking toward a falling one.
The stack in a strong uptrend
In a healthy advance, the averages line up in order: price above the 10-day, the 10-day above the 21-day, the 21-day above the 50-day and the 50-day above the 200-day, with all of them rising. Traders call this a bullish stack.
When the stack starts to tangle, with shorter lines crossing below longer ones, momentum is fading. This fits neatly with the four stages: stocks in stage 2 show a clean stack, stocks in stage 4 show the reverse.
Keep them in perspective
Moving averages lag, because they are built from past prices. They confirm a trend rather than predict it. Use them as guides for support, trend direction and selling rules, not as magic lines that must hold to the penny.
Common mistakes
- Adding so many moving averages that the chart becomes unreadable.
- Ignoring the slope and only checking whether price is above or below.
- Expecting price to bounce exactly on the line every time.
Key points
- A moving average smooths price and shows trend; EMAs react faster than SMAs.
- The 50-day and 200-day lines, or 10 and 40-week, are the most watched.
- In a strong uptrend, rising averages stack in order beneath price.
Check what you learned
Answer at least 2 of 3 correctly to complete the lesson.
1. What is the main difference between a simple (SMA) and an exponential (EMA) moving average?
An SMA weights every day equally; an EMA weights recent days more. Neither is better: EMAs suit short-term timing, SMAs are the standard for the 50 and 200-day lines.
2. A stock trades above its 200-day line, but the line is falling. What does that tell you?
The direction of the line matters as much as where price sits. A falling 200-day line means the long-term trend has not turned up.
3. What does a bullish stack look like?
In a healthy advance the averages line up in order beneath price and all point up. When they tangle, momentum is fading.
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