Glossary
Moving Average
The average closing price over a fixed number of recent days, recalculated daily so it moves along with the price.
A 50-day moving average is the mean of the last fifty closing prices. Tomorrow the oldest day drops out and the newest joins, so the figure moves. Plotted over time it produces a smoother line than the price itself, which is the point: it removes day-to-day noise so the longer shape is visible.
The 50-day and 200-day are the two most quoted, for no deeper reason than convention. A longer window smooths harder and reacts more slowly; a shorter one tracks the price more closely and jumps about more.
Because it is an average of past prices, a moving average always lags. It can describe where the price has been. Financial media often report a price crossing one of these lines as an event, and it is worth remembering that the line is arithmetic on old closes rather than information about the business.
Related terms
- MACDMoving Average Convergence Divergence, a chart indicator built from the gap between two moving averages of price.
- RSI (Relative Strength Index)A chart indicator scoring recent price momentum from 0 to 100 by comparing the size of up days with down days.
- 52-Week RangeThe highest and the lowest price a stock has traded at over the past year, printed as a pair.
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