Simple Mobile Media SMA

Simple Mobile Media SMA

A simple moving average (SMA or Simple Moving Average) is the simplest form of moving averages. Basically, a simple moving average is calculated by adding the latest closing prices of "X" periods and then dividing that number by "X".

If you place a simple moving average of 5 periods on a 1 hour chart, then you add the closing prices for the last 5 hours and then divide that number by 5, and that's it! There you have a simple moving average!

If a simple 5-period moving average is used on a 10-minute chart, the closing prices for the last 50 minutes (5 x 10 minutes) must be added and then the result is divided by 5.

If a simple 5-period moving average is to be placed on a 1-day chart, closing prices for the last 5-minute days are added and the result is divided by 5.

Most charts and trading platforms do the calculation automatically. But, we explain how the calculation of simple moving averages is made because it is important that you understand. If you understand how each moving average is calculated and represented, you can better decide which one to use.

Like any other indicator of technical analysis, moving averages are a lagging indicator. Since you are working with past price averages, you are only seeing a forecast of the future of the price and not the concrete view of the future.

 

[caption id="attachment_593" align="aligncenter" width="768"] Simple Mobile Media SMA[/caption]

 

 

This is an example of how moving averages are related to price.

In the previous chart, 3 different Simple Moving Average (SMA) are observed. As you can see, the longer the SMA period, the longer it lags behind the price. Note that the SMA 62 is much further from the current price than the other SMAs (30 and 5). The reason for this is that with the SMA of 62 periods, the closing prices of the last 62 periods are being added together and their result has been divided between 62.

The higher the period used, the slower the reaction to price movement.

In this chart the SMA shows the market sentiment, in this case Bullish, at this point in time. Instead of looking at the current market price, moving averages give us a broader look, and with this we can make a general prediction of the future of price.

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.