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Moving averages and lag
A moving average smooths yesterday’s and today’s prices. Smooth does not mean it knows tomorrow.
Choose an average for a stated task and recognize its delay.
A simple moving average, SMA, gives equal weight to each selected price. An exponential moving average, EMA, gives more weight to recent observations. Both transform historical data; neither knows the next price.
State the input and task: for example, a 20-period average of hourly closes to describe recent direction. Twenty hourly candles and twenty daily candles describe different horizons. A shorter setting usually responds faster but changes direction more often.
A crossover happens after the underlying prices have moved. In a sideways market, repeated crosses can create costly whipsaws. Test the average as a filter, an exit rule or a description; do not quietly switch its purpose after a loss.
Let’s use numbers · hypothetical example
Five hypothetical closes are 100, 101, 102, 103 and 104; their SMA is 102. Replace 100 with a new close of 105 and the SMA becomes 103. The line rises after prices rose.
Keep in mind
A smooth-looking line can hide large adverse price moves. No setting is universally best.
Your turn
Compare 10- and 30-period averages on the same trend and range, noting delay and false turns.
A quick check before we move on
Why does an average lag?
- It guarantees a delayed profit
- It is calculated from already observed prices
- It reads future orders
Check answer
It is calculated from already observed prices Averages summarize past observations. Their responsiveness depends on window and weighting.
Sources and further reading
Content reviewed: 29 October 2026
Educational material with hypothetical examples. Trading can cause substantial losses. A course, pattern, stop order or past result cannot guarantee a profit or limit every loss. Practise in simulation and check current rules and product terms in your jurisdiction.
