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Moving averages

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A 20-day moving average is the average close of the last 20 days, updated every day. It smooths out the wiggles. Simple (SMA) weighs every day the same; exponential (EMA) weighs recent days more.

Popular claim: price above the average = uptrend, and a crossover is a signal.

Brock, Lakonishok and LeBaron (1992) tested 26 simple rules on almost 90 years of the Dow (1897–1986). After 'buy' signals, prices did better than after 'sell' signals. Then Sullivan, Timmermann and White (1999) checked nearly 8,000 rules. The best one did not beat the market in the next ten years (1987The biggest one-day stock crash, 19 October 1987.–1996). Old success, new disappointment: a classic.

See Trend and Overfitting.

Related

• Trend
• MACD
• Bollinger Bands
• Overfitting

Sources & studies

1. Brock, Lakonishok & LeBaron (1992), Journal of Finance
2. Sullivan, Timmermann & White (1999), Journal of Finance

IndicatorsTrendMACD

Last checked: 2026-11-04 · Educational, not financial advice.

Education only, not financial advice. No signals. Backtests are hypothetical: real trading can be worse. Past results don't predict future results.