What Is That Line Moving Across the Chart? Moving Averages in Trading

What does the moving average show on the chart?

Moving averages in trading are similar to a ship's wake. You can see where the ship came from and how it turned, but not where it will turn in a minute. The average similarly averages the last N prices and shifts the point with each new candle.

What it really gives to the trader:

• Direction. The line is going up - the price is generally rising; down - falling; horizontal - flat.
• Speed. A steep slope shows strong movement, a gentle slope - weak.
• Reference point on the chart. After a sharp deviation, the price sometimes returns to the average, but this is not a rule: the movement can continue, and the timing of the return is unknown in advance.

StockCharts and TradingView explicitly call the average a lagging indicator: it describes past prices. Do not confuse it with "averaging a position" - adding volume; this is a different technique and a different risk.

If you are just putting together your first set of tools, start with a general map: what a beginner should even put on the chart - it covers five groups of indicators and the assembly order.

How EMA differs from SMA and which one to choose for a beginner?

For a start, two types are enough. SMA gives all candles in the period equal weight, EMA takes recent prices more into account:

In the TradingView menu, there are also SMMA, WMA, and VWMA. These are variations of the same idea with different weights. SMMA in the interface and RMA in Pine are two names for the same formula.

In EMA, old data does not disappear completely but gradually loses weight; in SMA, the candle drops out of the window. For a beginner, it is easier to start with one EMA and confirm its signal with another tool. You add the second line when you learn to read the first one.

YA.RUS practitioner on Smart-Lab suggests applying SMA and EMA together and seeing which line the price interacted with better historically. This is not about finding a permanent winner: you still need to check the asset and timeframe separately.

Moving average periods: which one to set for your timeframe?

In TradingView, the default length of the Moving Average is 9. First of all, open the settings and check the period.

Otherwise, it’s easy to read about EMA 200 while evaluating on the chart the behavior of the ninth average - a completely different indicator speed.

Next is simple lag arithmetic. For a simple moving average, the center of the window is approximately half a period behind the current candle. So SMA(200) on the daily chart lags by about 100 candles, and SMA(20) by about 10. For EMA, the "half-period" rule does not apply: it gives more weight to recent prices and usually reacts faster. There is no mysticism in the numbers, there is only this trade-off: the longer the period, the smoother the line and the later the turn.

What to base on:

Moving averages in trading are always interpreted together with the timeframe: the same period represents a different horizon. An EMA 20 on a five-minute chart covers approximately 100 minutes, while on a daily chart it covers about a month of trading days. Therefore, the number is always read together with the timeframe, not separately from it.

TradingView lists 12 and 26 as common for a short horizon, and 50 and 200 for a long one. But there is no magic number: in Mebane Faber's research, five different lengths gave a similar picture. If the result collapses from a small change in the period, it is just fitting to the history.

Why does the moving average always lag?

On the open candle, the average changes together with the current price, the final point is fixed after closing. The shorter the period, the quicker the reaction and the more false signals: the lag turns into noise.

What is done with this in practice:

1. They use the moving average as a directional filter, and look for the entry moment with another tool - an impulse one.
2. They do not wait for the entry point from the line. It answers the question 'where', not 'when'.
3. They look at the direction on a higher timeframe, and search for the entry on a lower one. About where the RSI breaks in a strong trend, there is a separate analysis - this is exactly about the pair 'direction plus momentum'.

How moving averages in trading are arranged inside Midas

Midas Up has four EMAs: 20, 50, 100, and 200. Thickness indicates the period, and color reflects the state of the trend filter and does not have to match the last candle.

Three roles that the moving averages perform for us simultaneously:

• Direction and strength of the trend. When the lines are arranged in a fan in order and point upwards, this is a strong bullish trend. Fan downwards - bearish.
• Dynamic benchmark. In a trend, the price most often bounces off the EMA 20 and 50, while the 200 EMA serves as a key level for major moves.
• Signal filter. BUY is shown only when the price is above the selected EMA, SELL - only when below. EMA 20 and 50 filter more gently, EMA 100 and 200 more strictly.

A strict filter also cuts off some potentially working signals. The TOP-100 scanner uses EMA 200 on H4. The average accounts for context, and the horizontal levels account for specific prices. The settings of the four lines are collected in the Midas reference.

Does the crossover of moving averages and the golden cross work?

The scheme is well-known. The fast average crosses the slow one from below - that's a golden cross, a bullish signal. From above - a death cross, bearish. Usually, the pair 50 and 200 is taken.

Both lines lag, so the cross forms after the movement. TradingView calls this a combination of two lagging indicators, and Binance warns about a bull trap: the cross formed, the price reversed. StockCharts adds that without a strong trend, such a system gives a series of whipsaws.

In Midas, an EMA crossover is not considered an entry. If the lines intertwine, it's a sign of a sideways market; a beginner is better off skipping such trades. The cross is more convenient to read as a marker of a regime change rather than a buy signal.

Why does the average turn into a whipsaw in a sideways market?

In a sideways market, the line is almost horizontal, and the candles constantly cross it in both directions. MQL5 and T-Investments describe the same effect: frequent false signals without continuation. Selecting the period does not fix this. If the lines are intertwined, the slope is gone, and the price moves sideways across them, it is better to wait for a trend or work from the range boundaries.

Can the average be considered a support level?

StockCharts allows the average as a dynamic reference, but does not prove that the line stops the price. In Midas, during a trend they look at EMA 20 and 50, while EMA 200 is used as a long-term boundary. Entries are sought after confirmation, not by touch. In a sideways market, horizontal levels are more useful; other techniques are collected in the technical analysis section.

A false breakout is especially important near the EMA 200: the price can quickly go beyond the line and return. Therefore, the mere fact of touching or breaking through does not replace reversal confirmation.

How to test a setup on your chart in 10 minutes?

Commentator VladUfa precisely described the risk of curve fitting under the golden cross review: 'In history, everything is always perfect for everyone.' Therefore, the check should proceed step by step, without peeking at future candles.

Procedure:

1. Open your asset on your working timeframe. Not someone else's.
2. Set one EMA with the period from the table above and scroll the chart back several months.
3. Go through the history forward and mark with your eyes: where the line gave a clear direction, and where you would have run into a saw.
4. Change the period to a neighboring one, for example, from 50 to 40 and to 60. The picture should remain similar.
5. If everything falls apart when shifting by a couple of steps, you adjusted the setting to a specific piece of history.
6. Separately, look at the sideways movement sections.

Also check the signal filter: turn it on in the history and compare the number of clear and missed entries.

What does science say about moving averages?

Park and Irwin compiled 92 studies of technical strategies of various types: 58 positive, 24 negative, 10 mixed. These works cover technical analysis as a whole, not just averages. The authors separately warn about overfitting and underestimation of costs. Rigorous checks by Sullivan, Timmermann, and White, and later by Fang, Jacobsen, and Qin, did not confirm stable out-of-sample predictive power.

For Faber, monthly timing based on the ten-month SMA barely increased returns but reduced maximum drawdown from about 84 to 50 percent. This result cannot be transferred to intraday trading: there the time horizon and costs are different. The average helps to see the regime, while risk remains the trader’s responsibility. More on overfitting in the analysis of indicators.

Risks and limitations

According to ESMA, when trading CFDs, 74-89 percent of retail investor accounts lose money. This statistic is specifically for CFDs, not for all markets and not for averages.

What the line cannot do:

• It does not predict. It describes what has already happened to the price.
• It does not manage risk. Position size, stop and allowable drawdown remain your decisions.
• It does not cancel out news. A company's report or a regulator's decision can break any formula.
• It often makes mistakes in a sideways market. When there is no trend, moving average crossovers by themselves are unreliable.

The Midas signal comes at the candle close and serves as a reason to open the chart. There is no auto-trading or copy-trading: the decision and risk remain yours.

Important. The material is informational. It is not an individual investment recommendation. The market is volatile, trading carries a risk of capital loss. Past results do not guarantee future ones.

Sources

• TradingView Help Center, "Moving Averages" (MA as a lagging indicator, length 9 by default) - https://www.tradingview.com/support/solutions/43000502589-moving-averages/
• TradingView Help Center, "Exponential Moving Average" (commonly used periods, acknowledgment of lag) - https://www.tradingview.com/support/solutions/43000592270-exponential-moving-average/
• TradingView Help Center, "Moving Average Ribbon" (up to four lines, five types of averages) - https://www.tradingview.com/support/solutions/43000644913-moving-average-ribbon/
• StockCharts ChartSchool, «Moving Averages - Simple and Exponential» - https://chartschool.stockcharts.com/table-of-contents/technical-indicators-and-overlays/technical-overlays/moving-averages-simple-and-exponential
• Wikipedia, "Moving average" (lagging approximately by half the window) - https://en.wikipedia.org/wiki/Moving_average
• Binance Academy, "Moving Averages Explained" (golden and death cross, bull trap) - https://www.binance.com/en/academy/articles/moving-averages-explained
• Aleksey Zinovik, «Comparing different types of moving averages in trading», MQL5, 05.12.2017 - https://www.mql5.com/en/articles/3791
• Park C.-H., Irwin S. «The Profitability of Technical Analysis: A Review», AgMAS Project Research Report 2004-04, University of Illinois, 2004 - https://farmdoc.illinois.edu/assets/marketing/agmas/AgMAS04_04.pdf
• Sullivan R., Timmermann A., White H. «Data-Snooping, Technical Trading Rule Performance, and the Bootstrap», Journal of Finance, 1999 - https://ideas.repec.org/a/bla/jfinan/v54y1999i5p1647-1691.html
• Fang J., Jacobsen B., Qin Y. «Predictability of the simple technical trading rules: An out-of-sample test», Review of Financial Economics, 2014 - https://ideas.repec.org/a/eee/revfin/v23y2014i1p30-45.html
• Mebane T. Faber, «A Quantitative Approach to Tactical Asset Allocation», Working Paper, 2006 - https://www.trendfollowing.com/whitepaper/CMT-Simple.pdf
• ESMA, press release from 27.03.2018 on retail account risks - https://www.esma.europa.eu/press-news/esma-news/esma-agrees-prohibit-binary-options-and-restrict-cfds-protect-retail-investors
• T-Investments, "Moving averages: why traders and investors need them", Smart-Lab, 21.06.2023 - https://smart-lab.ru/company/t_invest/blog/914640.php
• Pavel Gavrilov (Alfa-Investments), "Moving average crossovers: studying the 'Golden' and 'Death' cross in practice", Smart-Lab, 29.03.2024 - https://smart-lab.ru/company/alfa_investments/blog/1002637.php
• YA.RUS, "200 SMA or EMA?", Smart-Lab, 18.12.2025 - https://smart-lab.ru/blog/1244202.php
• Gennady Pavlenko, "How to trade by moving average signals if they don't give any!?", Smart-Lab, 21.12.2025 - https://smart-lab.ru/blog/1245289.php
• Fleet, "Moving Averages", Smart-Lab, 27.08.2024 - https://smart-lab.ru/blog/1053098.php
• Midas Handbook, section on EMA moving averages in Midas Up - /en/faq/midas-up-ema

Frequently Asked Questions

What role does EMA 200 play?

The EMA 200 shows the long-term context and serves as a strict signal filter; in the scanner, it is set on H4. Approaching this line is sometimes accompanied by a false breakout, so entries are sought after confirmation, not just from a single touch. The idea of the filter is simple: it cuts off trades against the main trend, but it does not promise that every touch of the line will become a reversal point.

Which moving averages should be used to look for an entry when the trend is already in motion?

In Midas, for pullbacks within a trend, they look at the EMA 20 and 50: the fan should maintain the direction, and the entry should receive separate confirmation. The moving average itself only shows the direction and depth of the pullback. The entry moment is sought separately: based on the price's reaction to the level and the closed candle, not just the fact of touching the line.

How can you tell from the moving averages that the market is in a sideways trend?

In a trend, the lines fan out and point in the same direction. In a sideways market, they intertwine, lose their slope, and the price moves back and forth through them. A beginner is better off skipping such a section. The check is simple: if the lines have intertwined and lost their slope, there is no unified direction, and trend-based rules work against you here.

How many moving averages should be kept on the chart?

To start, one or two is enough: a fast one for reaction and a slow one for context. The Moving Average Ribbon in TradingView supports up to four, while the free plan allows two indicators on the chart. More lines do not provide more clarity: two averages with different periods already answer both questions, the rest often just repeat the same thing.

How to add a moving average in TradingView and what to change there?

Click on "Indicators", find Moving Average, then in the gear icon check the length and the price source. The default length is 9. Then adjust it according to your timeframe: the shorter the period, the faster the reaction and the more noise; the longer, the smoother the line and the later the signal. It's convenient to save the settings as a template so you don't have to set it up again on every chart.

Why doesn't the line color match the price direction?

The color reflects the state of the trend filter, not the last candle. Therefore, the line may remain the same color while the filter considers the direction unchanged, even if a single candle closed against it. The exact mechanics of your version of the indicator should be checked in the Midas manual, rather than guessing by the color of the line on the chart.

Is it possible to enter a trade based solely on the moving average?

Not worth it. The average sets the direction, but not the entry moment. The point is found with a second tool and confirmed, especially in a sideways market. The average says nothing about the entry price or about when the idea should be considered unsuccessful. These two answers are taken from the chart structure and risk rules, not from the slope of the line.