Simple Moving Average - SMA

Loading the player...

What is a 'Simple Moving Average - SMA'

A simple moving average (SMA) is a simple, or arithmetic, moving average that is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods. Short-term averages respond quickly to changes in the price of the underlying, while long-term averages are slow to react.

Simple Moving Average (SMA)

BREAKING DOWN 'Simple Moving Average - SMA'

In other words, this is the average stock price over a certain period of time. Keep in mind that equal weighting is given to each daily price. As shown in the chart above, many traders watch for short-term averages to cross above longer-term averages to signal the beginning of an uptrend. As shown by the blue arrows, short-term averages (e.g. 15-period SMA) act as levels of support when the price experiences a pullback. Support levels become stronger and more significant as the number of time periods used in the calculations increases.

Generally, when you hear the term "moving average", it is in reference to a simple moving average. This can be important, especially when comparing to an exponential moving average (EMA).

To learn more about moving averages, check out What's the difference between moving average and weighted moving average?

RELATED TERMS
  1. Linearly Weighted Moving Average

    A type of moving average that assigns a higher weighting to recent ...
  2. Average Return

    The simple mathematical average of a series of returns generated ...
  3. Moving Average Ribbon

    A technique used in technical analysis to identify changing trends. ...
  4. Exponential Moving Average - EMA

    A type of moving average that is similar to a simple moving average, ...
  5. Guppy Multiple Moving Average - ...

    An indicator used in technical analysis to identify changing ...
  6. Average Price

    1. A representative measure of a range of prices that is calculated ...
Related Articles
  1. Investing

    How To Use A Moving Average To Buy Stocks

    The Moving Average indicator is one of the most useful tools to trade and analyze financial markets.
  2. Trading

    Use Moving Averages to Buy Stocks

    A moving average constantly updates a stock's average price, but it cannot predict a stock's performance.
  3. ETFs & Mutual Funds

    Using Moving Averages to Buy ETFs

    Learn how to use moving averages to enter and exit trades in ETFs, and understand some popular technical setups using moving averages.
  4. Trading

    Simple Vs. Exponential Moving Averages

    These technical indicators help investors to visualize trends by smoothing out price movements.
  5. Trading

    The 7 Pitfalls Of Moving Averages

    While moving averages can be a valuable tool, they are not without risk. Discover the pitalls and how to avoid them.
  6. Managing Wealth

    Adjusting Strategies to Moving Average Slopes

    Managing interrelationships between price, moving averages and slope can shift the reward: risk equation in your favor.
  7. Trading

    Weighted Moving Averages: The Basics

    We take a closer look at the linearly weighted moving average and the exponentially smoothed moving average.
  8. Markets

    What's a Death Cross?

    A death cross is seen when the short-term moving average of a security or index falls below its long-term moving average.
  9. Investing

    How To Calculate Your Investment Return

    How much are your investments actually returning? Find out why the method of calculation matters.
  10. Markets

    Weighted Average

    Learn how to weigh the relative importances of data points in a calculated average.
RELATED FAQS
  1. What is the difference between a simple moving average and an exponential moving ...

    The only difference between these two types of moving average is the sensitivity each one shows to changes in the data used ... Read Answer >>
  2. Are exponential moving averages more effective than simple or weighted moving averages?

    Learn about different types of moving averages, as well as moving average crossovers, and understand how they are used in ... Read Answer >>
  3. What are the most common periods used in creating Moving Average (MA) lines?

    Learn the most commonly selected periods used by traders and market analysts in creating moving averages to overlay as technical ... Read Answer >>
  4. I keep hearing about the 50-day, 100-day and 200-day moving averages. What do they ...

    Whether you are using the 50-day, 100-day or 200-day moving average, the method of calculation and the manner in which the ... Read Answer >>
  5. Why is the Exponential Moving Average (EMA) important for traders and analysts?

    Discover why chartists and technical analysts might use an exponential moving average (EMA) instead of a simple moving average ... Read Answer >>
  6. What are the main advantages of using Moving Averages (MA)?

    See why moving averages have proven to be advantageous for traders and analysts and useful when applied to price charts and ... Read Answer >>
Hot Definitions
  1. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  2. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  3. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  4. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  5. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  6. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
Trading Center