A moving average is a method of calculating the average value of a security's price, or indicator, over a period of time. The term "moving" implies, and rightly so, that the average changes or moves. When calculating a moving average, a mathematical analysis of the security's average value over a predetermined time period is made. As the security's price changes over time, its average price moves up or down.

A simple, or arithmetic, moving average is calculated by adding the closing price of the security for a number of time periods (e.g., 12 days) and then dividing this total by the number of time periods. The result is the average price of the security over the time period.
For example, to calculate a 21-day moving average of IBM: First, we would add up IBM's closing prices for the preceding 21 days. Next, we would divide that sum by 21; this would give us the average price of IBM over the preceding 21 days. We would plot this average price on the chart. The following day (tomorrow) we would do the same calculations: add up the previous 21 days' closing prices, divide by 21, and plot the resulting figure on the chart.