Moving averages are often used to isolate trends, but they are also sometimes used to identify support and resistance. The basic argument for using moving averages to define trends goes something like this: By smoothing out the price moves of a certain cycle length, you avoid acting on market moves that are merely short-term overreactions to exogenous signals (surprising news and other market shocks) and not a part of the normal market activity within the cycle youre attempting to isolate.

In theory, this would mean that while price reflects all exogenous signals and general market noise, a moving average of price will only reflect the moves of the market cycle of the next higher degree.