moving average investment & finance definition

The average of closing prices for a set period of time. Typical moving averages are calculated on a 3-, 10-, or 20-day basis, though averages can be calculated using any number of days. To calculate a 3-day moving average, three successive days of price moves are used. The average for the fourth day is figured and added, and the closing price for day one is dropped. The 3-day moving price average gives an indication of short-term price movements. A 20-day moving average smoothes out short-term price fluctuations; 3- or 10-day moving averages smoothes out short-term price changes to a lesser extent.