A moving average

A moving average is the average of the last so-many prices, redrawn as a line. A short average hugs the price. A long average lags behind it. Both are summaries of meetings that already happened.

Traders argue about the length. The length is less important than the sentence you can say. "Price is above a rising average" is a description. "The average will push the price up" is a story the line cannot tell. The average has no orders in it. The orders are in the book, at the bid and the ask.

Use one average, if you use one at all, as a ruler for the swings you already mark. If the line adds nothing you could not see from the swings, take it off. Decoration makes a chart feel busy and a decision feel justified.

One tool you can explain beats four you cannot. If a classmate asks what the line is for and you say "it works", it is not ready for the plan.

• Say what the average adds, in one sentence.
• If you cannot, remove it.
• Never add a second average to rescue a chart that is unclear.