Unit 1 · Level 2 · Support & Resistance
Moving averages
A moving average (MA) draws the AVERAGE price of the last N candles as a line. The 50-day MA, for example, averages the last 50 days. It smooths the noise so the underlying direction shows. Price above a rising MA: healthy. Below a falling one: heavy.
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What you get asked
What does a 200-day moving average show?
Each new day, the oldest day drops out and the newest joins, so the average 'moves'. The 200-day MA is the most famous line in finance.
Why do traders love moving averages?
An MA answers one question instantly: 'zoomed out, is this going up or down?' It's a trend thermometer, not a crystal ball.
Match the MA situation to its common reading
MAs also act like magnets: price tends to return to them after stretching far away.
A shorter moving average (like the 20-day) reacts ___ than the 200-day.
Short MA = quick but jumpy. Long MA = slow but steady. Traders often watch one of each; when the fast one crosses the slow one, trends may be turning.
In strong trends, price often pulls back to a rising MA and bounces. What is the MA acting as?
Support doesn't have to be horizontal! A rising MA is a moving floor, and the 'bounce off the 50-day' is one of the most traded patterns on earth.
The rest of this unit
Floors, ceilings, flips, moving averages: where the battles happen.