1. The moving average indicator is used in technical analysis to smooth out short-term price fluctuations and more accurately observe trends in the price action of a security.
2. To calculate the indicator, the average closing price of the security over a certain number of time periods is determined. A common time frame used is the 10, 20, or 50-day periods.
3. The values obtained then provide an indication of the current market trend. If prices are above the moving average, then the security is in an uptrend, and if prices are below the average, then it is in a downtrend.
4. The moving average indicator also helps traders identify potential entry and exit points, and can help provide confirmation of other technical indicators.
