SMA (simple moving average)

An SMA (simple moving average) is the plain average of the closing prices over the last N candles, recalculated with each new candle and drawn as a line on the chart.

How it works

To get a 20 SMA you add up the last 20 closes and divide by 20. With each new candle the oldest price drops out, the newest one comes in, and the line moves. This smooths out noise and makes direction easier to see.

Every price in an SMA has equal weight, so it reacts more slowly than an EMA, which gives more weight to recent data. Popular periods are 20 (short term), 50 (medium term) and 200 (long-term trend). Price above a rising 200 SMA is usually read as a sign of an uptrend.

Traders use SMAs as dynamic support and resistance, as a trend filter and as the base for other tools such as Bollinger Bands and crossovers like the golden cross. It is a lagging indicator: it describes what has already happened.

Example with numbers

Closes over 5 days: 10, 11, 12, 13, 14. The 5 SMA = 60 / 5 = 12. The next day closes at 15: 10 drops out, 15 comes in, and the 5 SMA = 65 / 5 = 13.

Common mistake

The mistake is buying every touch of a moving average as if it were rock-solid support. In a range price crosses the SMA back and forth dozens of times, and those signals produce a string of losses. Use the SMA as a direction filter and combine it with levels and market structure, not as a standalone signal.

Questions and answers

What is an SMA in simple terms?

It is the average price over the last N candles, drawn as a line. It shows the overall direction without the small wiggles.

What is the difference between SMA and EMA?

In an SMA every price counts equally, while an EMA gives more weight to recent prices. That makes the EMA react faster and the SMA smoother.

Which SMA period is best?

There is no single best one. The most common are 20, 50 and 200, and the choice depends on your timeframe and style.

SMA (simple moving average)

How it works

Questions and answers

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