A simple moving average is the average of a series of prices during a specified period. Moving averages, or variations, on a theme are some of the most widely used technical trading studies, and therefore, deserve a good understanding of their construction and use.

A moving average can be calculated on any time period such as a daily, weekly, or minute basis. One reason for using a moving average is to reduce some of the noise inherent in the shorter-term movements, and better depict the major trend of the market. This process, called smoothing the data, is often done in statistics to allow for easier analysis of all types of data.

The longer the number of days in the moving average, the smoother the moving average line. However, there is a danger in smoothing too much data over too long a time frame because many important short-term price fluctuations, such as seasonal patterns, may be lost in the smoothing process.

A moving average greater than one day (a one-day moving average is the same as the daily price activity) will move less quickly than the daily price. Later we will see how this phenomena is the curse and blessing of using moving averages for trading. Moving averages always seem to be either too fast or too slow. All kinds of periods may be used, but one of the most popular combinations is the 4-, 9-, and 18-day moving average.