A moving average is the simplest tool in charting: the average of recent prices, redrawn as each new bar arrives. Used as a trend filter it earns its keep; used as a buy signal it will disappoint you.
What a moving average actually is
A 50-day moving average is nothing more than the average of the last 50 closing prices, recalculated each day and plotted as a line. That is the entire trick. The line smooths out day-to-day noise so the underlying direction is easier to see — and because it is built from past prices, it always lags. A moving average will never call a turn early; it confirms what has already happened. Accepting that lag, rather than fighting it, is the first step to using the tool sensibly.
Simple versus exponential
A simple moving average (SMA) weights every price in its window equally. An exponential moving average (EMA) gives more weight to recent prices, so it turns faster when the market turns. Faster is not automatically better: the EMA reacts sooner to genuine changes of direction and sooner to meaningless noise, in equal measure. Short-term traders tend to prefer EMAs, longer-term position traders often stick with SMAs, and the honest answer is that the choice matters far less than using one consistently.
The settings everyone watches
Three lookback periods carry most of the market's attention: 20 (roughly a trading month), 50 (a quarter) and 200 (about a year). The 200-day average in particular has become shorthand for the long-term trend — financial news will report the FTSE 100, currently trading near 10,650, "reclaiming" or "losing" it as an event in itself. These numbers are conventions rather than laws of nature, but conventions watched by enough participants acquire a little self-fulfilling weight, much as round numbers do as support and resistance.
Three honest uses
First, as a trend filter. If price is above a rising 200-day average, treat the market as in an uptrend and prefer long ideas; below a falling one, prefer short ideas or stand aside. This will not catch tops and bottoms — it is designed not to. Second, as a disciplined exit: some trend followers close a position when price settles back through the 50-day line, a calmer alternative to exiting on emotion (see trailing stops in our stop-losses guide). Third, crossovers: when a shorter average crosses a longer one, the trend has plausibly changed. Crossovers are slow and frequently late, but they are honest — they never argue with the direction the market has actually moved.
The whipsaw problem
Every moving-average technique has the same failure mode: the sideways market. In a range, price crosses back and forth through its averages constantly, and a crossover system will buy the top of the range and sell the bottom with painful reliability. A long chop can hand you a dozen small losses in a row. No setting fixes this — a faster average whipsaws more often, a slower one gives back more of each trend. The practical defences are to check whether the market is actually trending before using a trend tool (our strategies guide covers the distinction), to size each bet so a string of losses is survivable, and to confirm signals with something that is not another moving average — a momentum or volatility measure, not a second copy of the same information.
Using them without fooling yourself
A moving average is arithmetic on prices everyone has already seen. It contains no information the chart does not, and no combination of averages turns lagging data into foresight. What it offers is discipline: a consistent, unemotional definition of trend, a sensible line to exit behind, and a reason to stay out of markets going nowhere. Pick one or two averages, write down exactly how you will use them, size every position so being wrong is affordable — see risk management — and run the whole plan on a demo account for a month before staking real money.
Keep it boring: most retail accounts lose money, and no moving average changes that by itself. The value is the routine it enforces — defined trend, defined exit, defined risk.
The rule that outranks every guide: never bet more than you can afford to lose.
Risk management →