Moving averages are one of the simplest and most useful technical indicators available. The basic definition of a moving average is that it is the average price of a security at a specific point in time. The purpose of the moving average is to show a trend over a given time period and display it in a smoothed fashion. The most common time periods are probably 15, 30, and 150 days. Each time span tells a different story and traders use different numbers to suit their individual needs. The shorter time span produces a more sensitive moving average while the longer time span reflects a smoother history.

There are many types of moving averages but the most common is the 'simple' average (not weighted) that is based on the closing price of the stock for that particular day. Moving averages can become more powerful when multiple histories are plotted on one chart. An example would be 'stochastics', but stock-price reversals in the direction of a moving average are usually more reliable than the moving average crossover. Remember, false signals can occur when using moving averages, so successful traders use other indicators to confirm the direction of price.

Most experts agree that the average itself can act as an area of support and resistance. Just like a trendline, the more times a moving average is touched, the greater the significance of any violation. A violation of the moving average is usually a warning that a change in character may be taking place but confirmations of trend changes should also be sought from alternative technical indicators. You can learn more about technical analysis in "How to Profit in Bull And Bear Markets" by Stan Weinstein.