The MA (Moving Average) indicator is one of the easiest and most popular tools in trading. Below are its functions, explanations, types, and usage presented simply:
What is MA (Moving Average)?
Moving Average (MA) is a line that shows the average price over a specified period. For example, a 10-day MA means the average price of the last 10 days. It helps to capture the general trend of the market.
Main function of the MA indicator:
Identifying trends:
When MA goes up, the market is in an uptrend.
When MA goes down, it is in a downtrend.
Support and Resistance:
The MA line often acts as support or resistance for prices.
Fake movement filter:
During sudden price fluctuations, MA helps filter out fake movements.
Types of MA:
SMA (Simple Moving Average):
The simple average of a specified period.
For example, a 10-day SMA means the average price of the last 10 days.
EMA (Exponential Moving Average):
Gives more weight to recent prices.
Beneficial for quickly capturing trends.
How does MA look?
Appears as a simple line on the chart.
If the price is above the MA line, the market is strong (bullish).
If the price goes below the MA line, the market is weak (bearish).
Example:
Suppose you are using a 5-day MA—
Today's MA means, adding the last 5 days' prices and dividing by 5 gives the result.
As new prices are added daily, the average is updated by removing the oldest prices.
Practical tips:
Short-term MA (like 5/10/20): Useful for quickly capturing small movements (Day/Swing Trading).
Long-term MA (50/100/200): Useful for capturing larger trends (Long-term Investors).
In short:
MA is the most basic and effective indicator for understanding trading direction. Without knowing this, it is difficult to understand trends.