MARKET ANALYSIS · Beginner · 7 min read · 3 Nov 2026 · Navion Pro Research
Trends and Moving Averages, in Plain Terms
Prices rarely move in a straight line, but they often move in a general direction for a while. That direction is the trend. This guide explains how to spot one, and how moving averages help you see it more clearly.
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Key Points
- An uptrend makes higher highs and higher lows. A downtrend makes lower highs and lower lows. A sideways market makes neither.
- A moving average smooths out price swings by averaging the price over a set number of periods.
- A simple moving average weighs every period equally. An exponential moving average gives more weight to recent prices, so it reacts faster.
- Moving averages follow the price. They show what has happened, so they always lag behind.
What a trend is
A trend is the general direction of a price over time. Within any trend, the price still rises and falls. What matters is where it keeps heading overall.
Traders often say "the trend is your friend". It means trades in the direction of the trend have the market's momentum behind them, while trades against it are swimming upstream. It is a guide, not a guarantee. Every trend ends at some point.
How to spot a trend from highs and lows
| Market | What the price does | What it suggests |
|---|---|---|
| Uptrend | Each high is above the last high, and each low is above the last low | Buyers are in control |
| Downtrend | Each high is below the last high, and each low is below the last low | Sellers are in control |
| Sideways | Highs and lows stay at about the same levels | Neither side is in control, and the price is in a range |
A trend may be weakening when that pattern breaks. In an uptrend, for example, a low that falls below the previous low is worth noticing.
What a moving average is
A moving average is the average price over a set number of recent periods, drawn as a line on your chart. Each time a new period closes, the oldest price drops out of the sum and the newest is added, so the average moves along with the chart.
The number of periods sets how smooth the line is:
- A short average, such as 20 periods, follows the price closely and turns quickly.
- A long average, such as 200 periods, is smoother and turns slowly. Many traders use the 200 day average as a guide to the long term trend.
An example: working out a simple moving average
This example is for illustration only.
The S&P 500 closes at these levels over 5 days: 6,800, 6,820, 6,840, 6,830 and 6,860.
- Add the closes: 6,800 + 6,820 + 6,840 + 6,830 + 6,860 = 34,150.
- Divide by the number of days: 34,150 ÷ 5 = 6,830.
- The 5 day simple moving average is 6,830.
The next day, the first close drops out and the new close is added. The platform does this sum for you, but knowing how it works helps you understand why the line moves the way it does.
Simple or exponential
| Type | How it is worked out | What it means for you |
|---|---|---|
| Simple moving average (SMA) | Every period counts equally | Smoother, slower to react to new moves |
| Exponential moving average (EMA) | Recent periods count more than older ones | Faster to react, but more likely to give early signals that do not last |
Neither is better. Shorter term traders often prefer the speed of an EMA. Longer term traders often prefer the steadiness of an SMA.
How traders use moving averages
- To see the direction. If the price is above a rising average, the trend is up. If it is below a falling average, the trend is down.
- As moving support and resistance. In a trend, the price often pulls back to an average and turns again.
- To spot crossovers. When a short average crosses above a long one, some traders see it as a sign the trend may be turning up. A cross below can suggest the reverse. When the 50 day average crosses the 200 day average, traders call it a golden cross if it crosses above and a death cross if it crosses below.
| If | Then it can suggest |
|---|---|
| The price stays above a rising average | The uptrend is intact |
| The price closes below an average it has held for weeks | The trend may be weakening |
| A short average crosses above a long one | Momentum may be turning up |
| A short average crosses below a long one | Momentum may be turning down |
A pattern, not a rule.
The limits of moving averages
- They lag. An average is built from past prices, so it confirms a move after it has started, not before.
- They struggle in sideways markets. When the price moves in a range, averages flatten and crossovers happen often, giving signals that go nowhere.
- No setting is perfect. A 20 period average and a 50 period average will tell different stories. Choose settings that fit how long you hold trades, and stick with them.
Risk disclosure: Trading involves significant risk of loss and is not suitable for all investors. Past performance is not indicative of future results. This brief is for information and education only. It is not investment advice, a recommendation or an instruction to buy or sell anything. The likely market reactions described here are our assessments of what could happen, not predictions, and markets can and often do move differently. Figures and forecasts come from third party sources and may change. Make your own decisions, and consider independent advice if you are unsure.
