In forex, the moving average is the average of successive currency pair prices over a given number of periods.

The basic plan is smooth out the noise on a chart and therefore to give a clearer picture of the trend, if any. Everything else being equal, a 14-period MA should give a smoother ride than a 7-period MA.

The ‘price’ of a time period is usually the closing price – although it’s possible to take the midpoint of the high and the low over the period, which in theory would be more accurate, in practice, not so vital…

The chart below shows the effect of time periods and smoothing.

Blue = 5-period MA
Red = 21-period MA
Purple = 60-period MA

As you can see, the short 5-period moving average keeps close to the price, while the long 60-period moving average smoothes out the peaks and troughs to give what is perhaps the longer-term trend.

And this gives the trade-off:- short period moving averages are responsive to price fluctuations and so signal a trend relatively quickly (and perhaps inaccurately), while longer period moving averages are slow to react, but more accurate when they do.