Moving average
What is a moving average, and how does it separate a trend from the noise of daily prices?
In plain words
A moving average takes the average price over the last set of periods, then slides that window forward, producing a smoothed line that rises or falls with the underlying direction.
Why it matters
Raw prices jump around, and a single bad hour can look like a trend change. A moving average filters those swings so a trader can see whether the broader direction is up or down.
In a real week: ETH, week of 16 November 2020
ETH rose 24.99% in the week of 16 November 2020, from 448.07 to 560.03, but daily changes alternated: -1.5% on 19 November followed by +8.28% on 21 November, with a -4.74% one-hour move at 05:00 UTC on Wednesday. An average of these prices would show a steady climb instead.
A common mistake
Expecting a moving average to predict direction. It only summarises recent prices, so it always lags the actual move.