MOVING AVERAGES
Plain English
A moving average smooths out price noise by averaging prices over a set period. The 50-day MA averages the last 50 closing prices. When the short-term MA crosses above the long-term MA, that's often a bullish signal — and vice versa.
Going deeper
Moving averages (MAs) are trend-following indicators that filter random price fluctuations. The Simple Moving Average (SMA) gives equal weight to all data points. The Exponential Moving Average (EMA) weights recent data more heavily, making it more responsive to current price action. Key moving averages: 20-day (short-term trend), 50-day (intermediate trend), 200-day (long-term trend). The Golden Cross (50-day crosses above 200-day) is a major bullish signal. The Death Cross (50-day crosses below 200-day) is a major bearish signal. Moving averages also act as dynamic support and resistance levels.
Examples
Golden Cross Signal
Apple's 50-day MA crosses above the 200-day MA in January. Historical data shows this Golden Cross preceded a 35% rally over the next 8 months. Many institutional algorithms use this crossover to initiate long positions.
MA as Support
A stock in a strong uptrend repeatedly bounces off its 50-day moving average during pullbacks. Each time it dips to the 50-day MA, buyers step in. Traders buy on touches of the 50 MA with a stop just below it.