Open up any book on stock market trading from your local bookshop and it will generally talk about 3 chart indicators – moving averages, Stochastics and a MACD (or Moving Average Convergence Divergence). These are the 3 most widely used charting indicators and the simplest is the moving average.

A moving average is a window on what has happened to the stock previously. For example, we calculate a 30 day moving average by looking back 30 trading days, then adding up the closing price for that stock during that time. We then divide by 30 to get an average price.

Average price = Sum of the price from the last 30 trading days / 30

We call it a moving average because that 30 day window moves forward day by day. For tomorrow we will remove day 1 of our calculation we just did and add in day 31. The next day we will remove day 2 from the first calculation and add in day 32 and so forth. This way the 30 day moving average is from the last 30 trading days.

On this chart, this is seen as a red line. For each day that we calculate the 30 day moving average, we draw a red dot. The line is drawn through these dots joining them together.