Trend and moving averages

"Charlie and I have had more fun working together than either one of us would have had individually, and we've never had an argument, after working together for fifty-eight years."

Charlie and I have had more fun working together than either one of us would have had individually, and we've never had an argument, after working together for fifty-eight years.

A moving average smooths out the day-to-day noise in a price and lets you see the underlying trend - where a stock is heading, not where it was yesterday.

The 50-day simple moving average (SMA 50) is the average of closing prices over roughly the last quarter: when the price sits above it, the short-term trend is up; when it slips below, that's an early sign of weakness. The 200-day simple moving average (SMA 200) does the same over roughly a year, and is the standard reference for the long-term trend.

When the SMA 50 crosses above the SMA 200, it's called a Golden Cross - a signal that the short-term trend is reinforcing the long-term one. The opposite crossover, the SMA 50 falling below the SMA 200, is a Death Cross. Neither guarantees anything on its own: both describe what has already happened to the price, not what will happen next.

Moving averages look backward by construction: they're calculated from prices that have already happened, so they confirm a trend after it has started rather than predicting it. A Golden Cross can appear when much of the rally has already happened, and a Death Cross when much of the decline is already behind. That's why their usefulness lies in describing where the trend stands right now, not in predicting where it will go tomorrow.