Guide to Using Moving Averages (MA)
— MA5, MA20, MA50, MA200
A moving average is the most basic indicator for stripping out price noise and visualizing a trend. We explain the role of each period, the bullish/bearish stack structure, and practical criteria for using it as support and resistance.
Types of Moving Averages
There are two kinds of moving averages: the simple moving average (SMA) and the exponential moving average (EMA). An SMA simply averages the closing prices over the period and is stable. An EMA weights recent prices more heavily, so it reacts faster. A typical chart is explained on an SMA basis, while MACD uses an EMA.
The Role of Each Key Moving Average
- MA5 (5-day): reading ultra-short-term direction. A reference for day-trading or short-swing entry timing. Noisy, so avoid using it alone.
- MA20 (20-day): roughly a 1-month trend. Acts as the first support level on a pullback. It's also the center line of the Bollinger Bands.
- MA50 (50-day): roughly a 2–3-month medium-term trend. Institutional investors use it as a medium-term benchmark. Strong support in a healthy uptrend.
- MA200 (200-day): roughly a 1-year long-term trend. The line separating a bull market from a bear market. Above MA200 = a long-term bullish structure; below = long-term bearish.
The Bullish Stack and the Bearish Stack
A bullish stack is when the short-term averages sit above the long-term ones, in the order MA5 > MA20 > MA50 > MA200. It means investors across every timeframe are sitting on a gain versus their average cost — the strongest uptrend structure. A bearish stack is the opposite, signaling a downtrend. This is why the moment a bullish stack has just formed, or a pullback within an already-bullish stack, is favored from a buying perspective.
Using It as Support and Resistance
When a stock pulls back within an uptrend, check for support in the order MA20 → MA50 → MA200. A bounce at MA20 is read as a short-term pullback; a bounce at MA50 is read as a medium-term pullback. Breaking MA200 should raise concern about a possible long-term trend reversal. Conversely, in a downtrend, a moving average acts as resistance instead.
Pullbacks and Moving Averages
The stretch where a stock that's been rising since a golden cross pulls back to MA50 is called a pullback. A pattern where MA50 holds as support and the price bounces from there is the textbook buy setup. The DawnScan scanner lets you check stocks near MA50 combined with other signals.