A moving average is one of the simplest form of technical indicators that can be used to read a trend in relation to stocks.
Simplistically speaking, an average is sum of different amounts divided by the total number of amounts. For example, an average of 3, 4 and 5 is 4 while an average of 3,4,5 and 6 will be 4.5. That’s simple maths, isn’t it?
Moving Average takes the concept of an average further to add the dimension of time. Extending the concept of time into an average essentially means summing of different amounts over a time period divided by the number of amounts within that time period.
As an example, if I saw 2 movies this week, 3 last week and 4 the week before, my moving average of number of movies per week for the last 3 weeks is 3 which is nothing but 2+3+4 divided by 3. However, my moving average for the last 2 weeks is 2.5.
This concept of a moving average is an useful indicator to determine what’s the trend related to a stock and where it is headed.