# What is Moving Averages | Calculation | How to trade in Moving Averages

Moving Averages
The moving average (MA) is one of the most popular and widely used technical indicators in the financial markets. It smoothens price data to create a single flowing line, which makes it easier for traders to identify the direction of the trend.

Definition:

A moving average simply averages a set of data points over a specific number of periods. The “moving” part of the name stems from the fact that as new data points become available, the oldest data points are dropped, and the average “moves” over time.

There are 2 types of moving averages

1. Simple Moving Average (SMA): It calculates the average of a selected range of prices, usually closing prices, by the number of periods in that range.
2. Formula: SMA = (Sum of Prices over n periods) / nFor instance, a 10-day SMA would add up the closing prices from the last 10 days and divide by 10.

1. Exponential Moving Average (EMA): It places a greater weight and significance on the most recent data points. The weighting applied to the most recent price depends on the specified period of the EMA.
2. Formula: EMA_today = (Close – EMA_yesterday) x Multiplier + EMA_yesterday Where, Multiplier = 2 / (Number of periods + 1)

What It Shows:

1. Trend Direction: If the moving average is rising, this indicates that the asset’s price is in an uptrend. Conversely, if the moving average is declining, this could suggest a potential downtrend.
2. Support and Resistance Levels: Prices often respect moving averages in a way that they may bounce off them. This makes moving averages potential dynamic support or resistance levels.
3. Price Crossovers: When an asset’s price crosses above or below a moving average, it may signal a potential change in trend direction.