A Simple Moving Average (SMA) is a technical indicator that shows the average price of an asset over a specific time period.
It is calculated by adding up a series of prices and then dividing the total by the number of data points.
For example, if the last three prices were 1, 2, 3, the average would be the sum of the prices (1+2+3) divided by the number of reporting periods.
The sum of
prices is 6 and the number of reporting periods is 3, so 6 divided by 3 equals 2.
The SMA is called a "moving average" because it is plotted on the chart with each bar, forming a line that "moves" with the chart as the average price changes.
The average "shifts" every time a new price appears, so the average is always based only on the last same number of reporting periods.
Using a simple moving average helps reduce the noise of price fluctuations, thereby determining the overall trend direction.
How to use the Simple Moving Average (SMA)
SMA is used to smooth price data.
The longer the period of the SMA, the smoother the results. But the longer the period for the SMA<, the more lag there is between the SMA and the actual price.
How to Calculate Simple Moving Average (SMA)
Unlike the WMA or EMA, the SMA is simply the averageor average of the price values over a specified period.
SMA = (A1 + A2 + ……….An) / n
A = average in period n n n is the number of periods