Lessons 1 through 5 covered the chart, candlesticks, volume, trends, and historical price areas. This lesson introduces the first calculated overlay: the moving average.
A moving average is a summary of where price has been. It is not a forecast of where price is going.
1. What Is a Moving Average?
A moving average is a calculation that averages a selected price value across a specified number of periods.
The closing price is commonly used as the input, though some charting platforms allow other price values.
Required principle: a moving average summarizes historical price data. It does not know where price will move next.
2. Why Is It Called “Moving”?
As a new completed period is added, the oldest period leaves the calculation when the lookback length remains constant.
The average therefore moves through time—each new value drops the oldest observation and includes the newest one.
3. Why Use an Average?
Individual prices can fluctuate substantially from one period to the next.
An average can smooth some of that variation and make broader historical price direction easier to observe.
4. Simple Moving Average
The Simple Moving Average (SMA) gives equal weight to every period in the lookback:
N is the number of periods in the lookback.
SMA = Sum of Selected Prices Over N Periods ÷ N
5. Five-Period SMA Example
Use these five closing prices:
Period 1 close = $10. Period 2 close = $11. Period 3 close = $12. Period 4 close = $13. Period 5 close = $14.
Sum = $10 + $11 + $12 + $13 + $14 = $60.
5-Period SMA = $60 ÷ 5 = $12
6. How the Average Moves
Now add Period 6 close = $15.
For the next 5-period SMA, remove Period 1 ($10) and add Period 6 ($15).
New prices: $11, $12, $13, $14, $15.
Sum = $11 + $12 + $13 + $14 + $15 = $65.
New 5-Period SMA = $65 ÷ 5 = $13
The average moved from $12 to $13 because one period entered the lookback and one period left it. This is why it is called a moving calculation.
7. Moving Averages Use Historical Inputs
Every SMA value is built entirely from prices that were already recorded when the calculation was made.
Every point on a simple moving average is calculated from historical price data available for that lookback
Therefore the SMA is a lagging calculation rather than a forecast.
8. The Meaning of “Period”
A period corresponds to the chart interval.
On a daily chart, one period = one daily interval.
On a weekly chart, one period = one weekly interval.
On a 5-minute chart, one period = one 5-minute interval.
9. Period Is Not Always Day
The same moving-average setting means different spans of time on different charts.
A 20-period moving average is a 20-day moving average only when the chart uses daily intervals
On a weekly chart it averages 20 weeks; on a 5-minute chart it averages 20 five-minute intervals. Always confirm the chart interval before reading “period” as “day.”
10. Moving Averages Used in This Course
This course emphasizes four commonly observed reference lengths:
- 20-period SMA
- 50-period SMA
- 100-period SMA
- 200-period SMA
These are the moving averages emphasized in Sage Trading Suite chart research. They are commonly observed reference lengths—not inherently superior choices.
11. 20-Period SMA
The 20-period SMA averages the selected price across the most recent 20 completed periods in the lookback calculation.
On a daily chart, it is commonly called the 20-day SMA.
12. 50-Period SMA
The 50-period SMA averages the selected price across the most recent 50 completed periods.
On a daily chart, it is commonly called the 50-day SMA.
13. 100-Period SMA
The 100-period SMA averages the selected price across the most recent 100 completed periods.
On a daily chart, it is commonly called the 100-day SMA.
14. 200-Period SMA
The 200-period SMA averages the selected price across the most recent 200 completed periods.
On a daily chart, it is commonly called the 200-day SMA.
Required warning: the 200-day SMA is a historical average, not a guaranteed floor, ceiling, or prediction.
15. Shorter Versus Longer Moving Averages
A shorter SMA uses fewer historical periods and generally responds more quickly to recent price changes.
A longer SMA uses more historical periods and generally changes more slowly.
16. Why the 20-Period SMA Moves Faster
Each new price represents one-twentieth of a 20-period calculation—5% of the sum—so a single new observation has a comparatively large effect.
Faster response does not mean better. It means more sensitivity to recent prices, which includes recent noise.
17. Why the 200-Period SMA Moves More Slowly
One new price is only one of 200 observations—0.5% of the sum.
Individual recent price changes therefore generally have less immediate effect on the average.
18. Moving Average Comparison Table
The following table compares the four moving averages emphasized in this course. No average is labeled best; each offers a different perspective.
| Moving Average | Number of Periods | Relative Responsiveness | Research Perspective | What It Does NOT Predict |
|---|---|---|---|---|
| 20-Period SMA | 20 | Highest of the four—reacts fastest to recent prices | Recent short-term price behavior | That recent behavior will continue |
| 50-Period SMA | 50 | Moderately responsive | Short-to-intermediate historical direction | The direction of the next 50 periods |
| 100-Period SMA | 100 | Relatively slow | Intermediate-to-longer historical direction | That the longer direction will persist |
| 200-Period SMA | 200 | Slowest of the four | The broadest historical average of the four | That price must respect or return to it |
19. Price Above a Moving Average
If current price = $55 and the 50-period SMA = $50, price is $5 above the SMA.
$55 − $50 = $5.
This is an objective measurement. It is not a buy signal.
Price Difference = Current Price − SMA
20. Price Below a Moving Average
If current price = $45 and the 50-period SMA = $50:
Price Difference = $45 − $50 = −$5.
Current price is $5 below the average. This is not a sell signal.
21. Percentage Distance From an SMA
Dollar distance depends on the stock's price level, so researchers sometimes measure distance as a percentage:
Using current price = $55 and SMA = $50:
($55 − $50) ÷ $50 × 100 = 10%.
Price is 10% above the selected SMA.
Distance From SMA % = (Current Price − SMA) ÷ SMA × 100
22. Negative Percentage Distance
Using current price = $45 and SMA = $50:
($45 − $50) ÷ $50 × 100 = −10%.
Price is 10% below the selected SMA.
Do not assign an automatic bullish or bearish conclusion to a positive or negative distance.
23. Zero-Denominator Note
The percentage-distance formula divides by the SMA. If the comparison SMA were zero, the calculation could not be performed, because division by zero is undefined.
For normal positive-priced equities this is not a typical practical case, but formulas should still be handled correctly rather than assumed safe.
24. Price Crossing Above an SMA
Price crossing above an SMA means price moved from below the calculated average to above it.
Required warning: a cross above a moving average does not guarantee that price will continue rising.
25. Price Crossing Below an SMA
Price crossing below an SMA means price moved from above the calculated average to below it.
Required warning: a cross below a moving average does not guarantee that price will continue falling.
26. Moving Average Slope
Researchers can observe whether an SMA is:
- rising
- falling
- relatively flat
Slope describes how the historical average itself has been changing.
27. Rising SMA
A rising SMA means newer calculation values are higher than earlier calculation values.
It does not guarantee future price increases.
28. Falling SMA
A falling SMA means newer calculation values are lower than earlier calculation values.
It does not guarantee future price declines.
29. Flat SMA
A relatively flat SMA indicates the calculated historical average has changed relatively little over the observed period.
Do not claim a breakout must follow a flat average.
30. Price Direction and SMA Direction Can Differ
Price can rise while a longer SMA is still falling.
Price can fall while a longer SMA is still rising.
This occurs partly because moving averages incorporate earlier historical prices: the newest period can push price one way while the dropping of an old period pulls the average the other way.
31. Lag
Lag means a moving average responds after underlying price data changes, because it is calculated from historical observations.
Required statement: lag is a mathematical characteristic of moving averages, not necessarily a defect. Smoothing and lag are two sides of the same calculation.
32. Multiple Moving Averages
Displaying the 20-, 50-, 100-, and 200-period SMAs together can provide several historical perspectives at once.
Do not turn their ordering into a trading system.
33. Moving Average Ordering
Sometimes shorter averages appear above longer averages, sometimes below them, and sometimes mixed among them.
This describes the relationship among historical averages. It does not guarantee future direction.
34. Moving Average Crossovers
A moving-average crossover occurs when one moving average moves from one side of another moving average to the other side.
This lesson does not introduce “golden cross” or “death cross” as predictive trading signals. Those names describe the same mathematical event—a crossover—and carry no predictive power of their own.
35. Shorter SMA Crossing Above Longer SMA
When a shorter SMA crosses above a longer SMA, the recent-period average has risen enough relative to the longer-period average that the two values have changed places.
Required warning: this crossover describes a change in the relationship between two historical averages. It does not guarantee a new uptrend.
36. Shorter SMA Crossing Below Longer SMA
When a shorter SMA crosses below a longer SMA, the recent-period average has fallen enough relative to the longer-period average that the two values have changed places.
Required warning: this crossover does not guarantee a new downtrend.
37. Crossovers Occur After Price Has Already Moved
A crossover can only happen after enough completed price data has changed the averages' relationship.
By definition, the crossover is visible only after the underlying price movement that caused it—reinforcing the lagging nature of moving averages.
38. Moving Averages and Trend Research
Lesson 4 described trend structure using sequences of highs and lows.
Moving averages provide another way to summarize historical direction, but swing-based trend structure and moving averages are not identical concepts. A chart can show a clear higher-low structure while a longer SMA is still falling, for example.
39. Moving Averages and Support
Lesson 5 explained support as an area where declines previously slowed.
Researchers sometimes observe price slowing or reversing near an SMA.
However: an SMA is not a guaranteed support level.
40. Moving Averages and Resistance
Price may also interact with an SMA from below, pausing near it during an advance.
However: an SMA is not a guaranteed resistance level.
41. Dynamic Support and Resistance Language
Phrases such as “dynamic support” and “dynamic resistance” are commonly used because an SMA changes over time, unlike a fixed historical price zone.
Required warning: these phrases describe observed price interaction. They do not mean the moving average controls price.
42. Price Can Move Straight Through an SMA
Price can cross an SMA, gap across an SMA, or move back and forth across an SMA without stopping.
This is another reason not to treat moving averages as physical barriers.
43. Moving Averages and Volume
Lesson 3 explained that volume measures trading activity.
Volume can provide additional context when price interacts with a moving average.
Do not claim that elevated volume guarantees that a crossover or price move will succeed.
44. Moving Averages and Earnings
Earnings or major company news can cause price to move substantially away from historical averages.
The moving average itself does not explain the business reason for the movement—that requires researching the underlying event.
45. Moving Averages and Gaps
Price can gap above or below one or several moving averages between trading periods.
The gap should prompt investigation of the underlying event or market context, not an automatic conclusion from the chart alone.
46. Moving Averages Near a 52-Week Low
A stock near its 52-week low might be:
- below all four moving averages
- below longer averages but near a shorter average
- moving back and forth around shorter averages
- above some averages after a rebound
These are descriptions of the current price's relationship to historical averages. They are not recommendations.
47. Moving Average Research Framework
The following framework organizes the elements to observe when researching a stock's relationship to its moving averages.
| Chart Element | What to Observe | Research Question | What It Does NOT Prove |
|---|---|---|---|
| Current Price | The latest represented price on the chart | What is the current price? | What the next price will be |
| 20-Period SMA | The value of the 20-period simple moving average | Where does the recent short-term average sit? | Where short-term price will move next |
| 50-Period SMA | The value of the 50-period simple moving average | Where does the intermediate average sit? | That price will return to or respect it |
| 100-Period SMA | The value of the 100-period simple moving average | Where does the longer intermediate average sit? | That the average defines fair value |
| 200-Period SMA | The value of the 200-period simple moving average | Where does the broadest of the four averages sit? | That the 200-period average must hold or act as a barrier |
| Price vs. 20 SMA | Whether price is above or below the 20-period SMA | How does price compare with the shortest average? | That the relationship will persist |
| Price vs. 50 SMA | Whether price is above or below the 50-period SMA | How does price compare with the intermediate average? | That being above is bullish or below is bearish by rule |
| Price vs. 100 SMA | Whether price is above or below the 100-period SMA | How does price compare with the longer average? | That the position relative to the average predicts direction |
| Price vs. 200 SMA | Whether price is above or below the 200-period SMA | How does price compare with the broadest average? | That crossing it guarantees a trend change |
| SMA Slopes | Whether each average is rising, falling, or relatively flat | How have the historical averages themselves been changing? | That current slopes must continue |
| SMA Crossovers | Whether one average has moved across another | Have the relationships between averages changed? | That a crossover guarantees a new trend |
| 52-Week-Low Context | Whether current price is near its 52-week low | How does the price/average relationship look near the low? | That the averages identify a bottom or value |
48. Multi-Timeframe Moving Average Review
The meaning of a period changes with the chart interval. The following table makes clear that a 200-period SMA is NOT always a 200-day SMA.
| Chart Interval | Meaning of One Period | Meaning of 20-Period SMA | Meaning of 200-Period SMA | Important Limitation |
|---|---|---|---|---|
| Daily Chart | One trading day | 20-day SMA—about one month of trading days | 200-day SMA—about ten months of trading days | Hides intraday detail |
| Weekly Chart | One week | 20-week SMA—about five months | 200-week SMA—nearly four years | A 20-period SMA here is NOT a 20-day SMA |
| Monthly Chart | One month | 20-month SMA—over a year and a half | 200-month SMA—over sixteen years | Very long lookbacks; a 200-period SMA is NOT 200 days |
| 5-Minute Chart | Five minutes | 20 five-minute periods—100 minutes | 200 five-minute periods—about 1,000 minutes | Short spans of time despite large period counts |
| 15-Minute Chart | Fifteen minutes | 20 fifteen-minute periods—5 hours | 200 fifteen-minute periods—about 50 hours | Same period count, different real time than the 5-minute chart |
| Hourly Chart | One hour | 20 hours of trading | 200 hours of trading—about a month of sessions | A 200-period SMA here is 200 hours, not 200 days |
49. What Moving Averages Cannot Establish by Themselves
No matter how neatly price sits relative to its averages, certain conclusions require evidence beyond the moving averages themselves.
- Whether price will remain above an SMA
- Whether price will remain below an SMA
- Whether an SMA will act as support
- Whether an SMA will act as resistance
- Whether a crossover will succeed
- Whether the current trend will continue
- Whether the current trend will reverse
- Whether a stock has reached its bottom
- Whether a stock has reached its top
- Whether the company is fundamentally sound
- Whether earnings will improve
- Whether the stock is undervalued
- Tomorrow's stock price
- Whether an investment is suitable for a particular person
Moving averages organize historical price data. They do not eliminate uncertainty about future prices.
50. Build a Moving Average Research Process
The following process and checklist turn this lesson into a repeatable routine for describing moving-average relationships objectively.
Calculation note: moving-average explanations in this lesson use completed historical periods. Some charting platforms include the developing current period in a live calculation, which means the displayed SMA can change as the current period changes—and providers do not all handle developing periods identically. Confirm how your platform calculates before comparing values.
- 1Identify the security.
- 2Select the chart range.
- 3Identify the chart interval.
- 4Confirm what one period represents.
- 5Display the 20-period SMA.
- 6Display the 50-period SMA.
- 7Display the 100-period SMA.
- 8Display the 200-period SMA.
- 9Compare current price with each moving average.
- 10Observe whether each average is rising, falling, or relatively flat.
- 11Note the ordering of the moving averages.
- 12Note any recent price/SMA or SMA/SMA crossings.
- 13Review a shorter and longer chart perspective.
- 14Check for earnings, news, gaps, or unusual volume affecting price.
- 15Separate moving-average observations from future predictions.
- 16Record what additional company, fundamental, or valuation research is needed.
Moving Average Research Checklist
- 1What security am I reviewing?
- 2What chart range am I using?
- 3What chart interval is displayed?
- 4What does one period represent?
- 5What is the 20-period SMA?
- 6What is the 50-period SMA?
- 7What is the 100-period SMA?
- 8What is the 200-period SMA?
- 9Is current price above or below the 20-period SMA?
- 10Is current price above or below the 50-period SMA?
- 11Is current price above or below the 100-period SMA?
- 12Is current price above or below the 200-period SMA?
- 13What is the percentage distance from the 20-period SMA?
- 14What is the percentage distance from the 50-period SMA?
- 15What is the percentage distance from the 100-period SMA?
- 16What is the percentage distance from the 200-period SMA?
- 17Is the 20-period SMA rising, falling, or relatively flat?
- 18Is the 50-period SMA rising, falling, or relatively flat?
- 19Is the 100-period SMA rising, falling, or relatively flat?
- 20Is the 200-period SMA rising, falling, or relatively flat?
- 21How are the moving averages ordered?
- 22Have any recent moving-average crossovers occurred?
- 23Has price recently crossed any moving average?
- 24Did earnings, news, or a gap affect the recent price relationship?
- 25What was volume doing during important price changes?
- 26Is the stock near its 52-week low?
- 27What can the moving-average data establish objectively?
- 28What additional evidence should I research?
This checklist organizes observation; it does not produce a prediction or an investment recommendation.