Moving Average Indicator

What is a Moving Average?

Using a moving average in statistics is a way of analysing data points by taking the standards of different subsets of the entire data set and calculating the average of each one. It is a stock indicator extensively employed in technical analysis in finance. A stock’s moving average is calculated to smooth out the price data by producing an average price that is constantly being updated. 

It’s not easy to predict stock market trends. Even though it is hard to anticipate the future movement of a given stock, employing technical analysis and research can help you create more accurate predictions. 

A rising moving average suggests an uptrend, whereas a falling moving average indicates a decline. Short-term moving averages crossing below longer-term moving averages is a bearish crossover, which could indicate a downward momentum. 


How to calculate moving average

Simple moving average: 



A=Average in period n 

n=Number of time periods​ 

Exponential Moving Average: 



EMAt​=EMA today 

Vt​=Value today 

EMAy​=EMA yesterday 


d=Number of days​ 


Moving Average Indicator

Types of Moving Averages

Simplifying Moving Average 

 Simple moving average (SMA) is computed by taking the arithmetic mean of a particular set of values over a predetermined time. This form of a moving average is also the most common type. To put it another way, a group of numbers, or prices in the case of financial instruments, are summed up, and then that total is divided by the total number of prices in the group. 

Moving average with an exponential scale (EMA) 

An example of a moving average is the exponential moving average, which differs from other moving averages in that it lends more significance to more recent prices to make the moving average more sensitive to new information. Before you can compute an exponential moving average (EMA), you must determine the simple moving average (SMA) for a given time. The next step is to determine the multiplier used for weighting the EMA.  

This factor is also known as the “smoothing factor,” and its calculation typically follows the formula [2/(selected period + 1)]. Therefore, the multiplier for a moving average of 20 days would be [2/(20+1)], which equals 0.0952. After that, you calculate the current value by adding the smoothing factor to the prior EMA and then taking the product of those two values. In light of this, the EMA assigns a greater weighting to more recent prices, whereas the SMA offers an equal weighting to all deals. 


The Exponential Moving Average, also known as the EMA, and the Simple Moving Average, often known as the SMA, measure trends similarly. The interpretation of the two averages is the same, and both of them are used frequently by technical traders to smooth out price variations. This is another reason why the two averages are comparable to one another. 

The two measurements, however, do not correspond precisely to one another in every respect. The degree to which each indicator is sensitive to variations in the data it employs in its computation is the crucial distinction between a simple moving average and an exponential moving average (EMA). 

The Simple Moving Average (SMA) is used to determine price averages, whereas the Exponential Moving Average (EMA) lends more weight to recent data. The most recent price information will significantly impact the moving average, while older price information will have a lesser effect. 

More explicitly, the simple moving average offers equal weighting to all values, whereas the exponential moving average gives a higher weighting to recent prices. 


How do traders use moving averages?

A straightforward instrument for technical analysis, the moving average (MA) helps to smooth out price data by generating an average price continuously revised. The standard is calculated over a predetermined amount of time, such as 10 days, 20 minutes, 30 weeks, or any other amount of time that the trader determines. Regarding trading, using a moving average can provide you with several benefits, and you also have choices on the moving average to apply. 

Day traders looking for an edge in trading the market from both the long and short sides might find the appropriate inputs in the form of 5-, 8-, and 13-bar simple moving averages. Moving averages also function very well as filters, indicating to market participants with quick fingers when the level of risk is too high for intraday entries. 

Moving average trading strategies

Trading Strategy Based on Moving Averages 

The exponential moving average (EMA) is used in this particular trading technique for moving averages because of the EMA’s capacity to react rapidly to shifts in price. The strategy is as follows. 


  • On a chart that’s 15 minutes long, draw three exponential moving averages: one with five periods, one with 20 periods, and one with 50 periods. 
  • When the five-period EMA crosses from below to above the 20-period EMA and the price, five, and 20-period EMAs are above the 50-period EMA, it is an excellent time to buy the security. 
  • Sell when the five-period EMA crosses from above to below the 20-period EMA, and sell again when both the price and EMAs are below the 50-period EMA. This is the signal for a sell trade. 
  • If you are entering a buy trade, position the initial stop-loss order so that it is below the 20-period EMA; alternatively, place it approximately ten pips away from the entry price. 
  • When the transaction is ten pips in the black, you have the option of breaking even by moving the stop-loss order to break even. 
  • Think about setting a profit target of 20 pip, or another option is to pull out of the trade when the five-period drops below the 20-period if you are long or when the five-period climbs above the 20 if you are short. 

Frequently Asked Questions

Moving averages, also known as MAs, are popular technical indicators used to smooth out price trends by removing the noise caused by random short-term price movements. 

Calculating a simple moving average is the same as the number of periods included in the range of prices being averaged. A simple moving average is a technical indicator that can help identify whether or not a bull or bear trend will continue in an asset’s price or whether or not the trend will reverse. 

When used as a general rule, an upward trend is shown when the price is higher than a moving average. A downward trend is present when a price falls below a moving average. However, because moving averages can have varying lengths (as will be covered in the following paragraph), one MA could suggest an upward trend. At the same time, another MA could indicate a downward trend. 

To determine the MA, you only need to add up all the numbers in the set, then divide that sum by the total number of different values in the background. If you were to compute the moving average over five years, you would first sum up the numbers for that period and then divide that total by the number of years in the period. 

    Read the Latest Market Journal

    Weekly Updates 26/2/24 – 1/3/24

    Published on Feb 28, 2024 47 

    This weekly update is designed to help you stay informed and relate economic and company...

    All-in-One Guide to Investing in China via ETFs

    Published on Feb 27, 2024 271 

    Start trading on POEMS! Open a free account here! Why China? In the vast landscape...

    Navigating the Post-Inflation Landscape in 2024: Top 10 US Markets Key Events to Look out for

    Published on Feb 23, 2024 302 

    Start trading on POEMS! Open a free account here! In 2023, the United States experienced...

    From Boom to Bust: Lessons from the Barings Bank Collapse

    Published on Feb 23, 2024 60 

    Barings Bank was one of the oldest merchant banks in England with a long history...

    Decoding FX CFD 2.0

    Published on Feb 20, 2024 66 

    This article is aimed at availing information and knowledge essential to intermediate forex traders. It...

    Weekly Updates 19/2/24 – 23/2/24

    Published on Feb 19, 2024 89 

    This weekly update is designed to help you stay informed and relate economic and company...

    Unlock Prosperity with 5 Sure-Fire Financial Instruments!

    Published on Feb 14, 2024 197 

    In Singapore, the concept of guaranteed returns may evoke the spirit of prosperity, reminiscent perhaps...

    Weekly Updates 12/2/24 –16/2/24

    Published on Feb 13, 2024 70 

    This weekly update is designed to help you stay informed and relate economic and company...

    Contact us to Open an Account

    Need Assistance? Share your Details and we’ll get back to you


    This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

    An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

    Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

    Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

    The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <> for more information in relation to the dividend distributions.  

    The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

    The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

    This advertisement has not been reviewed by the Monetary Authority of Singapore.  


    Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
    250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
    Tel: (65) 6230 8133 Fax: (65) 65383066