Moving average
Also called: moving averages, 200-day moving average, 50-day moving average, 200-day average
The average closing price over a set number of recent days, recalculated daily. It smooths a chart so the trend is easier to see.
A 50-day moving average is the average of the last 50 closing prices. Each day the oldest price drops off and the newest is added, so the line follows the price but more slowly. The 50-day and 200-day averages are the ones most people watch.
A share trading above a rising 200-day average is, by a common definition, in a long-term uptrend. When the 50-day crosses above the 200-day, people call it a golden cross. Its record as a signal is weak, because by the time two slow averages cross, much of the move has already happened.
Example
A share closes at 100, 102, 101, 104 and 103 over five days, so its 5-day moving average is 102. If it closes at 108 the next day, the 100 drops out and the average becomes 103.6.
Watch out
A moving average describes the past. It helps you see the trend and decide where you would admit a mistake. It does not tell you what happens tomorrow.
Learn it properly in
Chapter 3.1: Candlesticks, volume and trend: reading a price chart for the first time