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Simple
Moving Average (SMA) |
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A
simple moving average is calculated by adding the closing prices
of a security for a user-defined number of time periods. The result
is then divided by this number of time periods. 
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The SMA is not time weighted which means it reacts more slowly than an EMA. Often traders find the SMA too slow for short-term signals and prefer it to give an indication of the overall trend. To accomplish this a long-term and a short-term moving average are used. If a short-term average is below the longer-term average prices is said to be in a downtrend. If it moves above then there is a signal that the trend may be changing. |
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