Simple Moving Averages (SMA)

Simple Moving Average (SMA)

A **Simple Moving Average (SMA)** is a technical indicator that calculates the average of a selected range of prices, usually closing prices, by the number of periods in that range ¹. It is an arithmetic moving average calculated by adding recent prices and then dividing that figure by the number of time periods in the calculation average ¹. The formula for SMA is: `SMA = (A1 + A2 + ... + An) / n` where `An` is the price of an asset at period `n` and `n` is the number of total periods ¹. A simple moving average smooths out volatility and makes it easier to view the price trend of a security. If the simple moving average points up, this means that the security's price is increasing. If it is pointing down, it means that the security's price is decreasing ¹.

How to use SMA

A **Simple Moving Average (SMA)** can be used as a technical indicator to aid in determining if an asset price will continue or if it will reverse a bull or bear trend ². It can be enhanced as an exponential moving average (EMA) that is more heavily weighted on recent price action ². A simple moving average smooths out volatility and makes it easier to view the price trend of a security. If the simple moving average points up, this means that the security's price is increasing. If it is pointing down, it means that the security's price is decreasing ².

(1) Simple Moving Average (SMA): What It Is and the Formula - Investopedia. https://www.investopedia.com/terms/s/sma.asp. (2) Simple Moving Average (SMA) - Overview, How To Calculate. https://corporatefinanceinstitute.com/resources/capital-markets/simple-moving-average-sma/. (3) Moving Average (MA): Purpose, Uses, Formula, and Examples - Investopedia. https://www.investopedia.com/terms/m/movingaverage.asp. (4) What Is a Simple Moving Average? - The Balance. https://www.thebalancemoney.com/what-is-a-simple-moving-average-5207024.