Definition
Simple Moving Average calculates the arithmetic mean of prices over a defined period. Each price point is weighted equally. Common periods include 20-day (short-term), 50-day (medium-term), and 200-day (long-term). When price crosses above SMA, it may signal bullish momentum.
Formula
SMA = (P1 + P2 + ... + Pn) / n
Example
A 50-day SMA adds the last 50 closing prices and divides by 50. If the sum is $2,500, the SMA is $50. Tomorrow, the oldest price drops off and today's price is added.
FAQ
What is Simple Moving Average (SMA)?
An average of closing prices over a specific number of periods.
How do you calculate Simple Moving Average (SMA)?
A common formula for Simple Moving Average (SMA) is: SMA = (P1 + P2 + ... + Pn) / n
Why is Simple Moving Average (SMA) important?
Simple Moving Average (SMA) helps investors evaluate technical analysis and make more informed decisions.