How does a moving average act in terms of trend determination?

A moving average acts as a dynamic support or resistance level, which is a key feature in technical analysis. When the price approaches a moving average from above, the moving average can act as a support level, where traders might expect the price to bounce back up. Conversely, when the price approaches the moving average from below, it can serve as a resistance level, where the price may reverse downwards. This interplay between price movement and the moving average helps traders make informed decisions about entry and exit points based on potential reversals and continuations of the trend.

The use of moving averages for identifying such support and resistance levels is fundamental in trend determination, as they help to smooth out price data, revealing the underlying trend direction. This characteristic is essential for traders looking to confirm trends and make predictions about future price movements.