AcademyacademySimple Moving Average (SMA)
Simple Moving Average (SMA)
"Every price in a Simple Moving Average receives equal weight."
10 mins read Beginner Essential
1. What is SMA?
A Simple Moving Average is the arithmetic average of closing prices over a fixed number of periods.
2. Simple example
A 5-day SMA adds the last five closing prices and divides the total by five. Tomorrow, the oldest close drops out and the newest close is added.
3. Common SMAs
20 SMA – short-term trend
50 SMA – intermediate trend
100 SMA – medium-term context
200 SMA – long-term trend
4. Advantages
Easy to understand
Smooths fluctuations
Widely followed by market participants
5. Limitations
Responds slowly to sudden changes
Not ideal for fast-moving markets
DStreet Principle
An SMA is a reference line, not a trading signal.
Knowledge Check
Q. Why is it called 'simple'?
A. Every observation has equal weight.