What is an SMA (simple moving average)?
In one line: An SMA, or simple moving average, is the plain average of the last set number of closing prices, with every candle counted equally.
A simple example
Take the last 5 closing prices: 20, 22, 21, 23, 24.
Add them: 20 + 22 + 21 + 23 + 24 = 110.
Divide by 5: 110 ÷ 5 = 22. That's the 5-candle SMA.
Tomorrow's close is 25. Drop the oldest (20), add the newest (25). Now it's 22 + 21 + 23 + 24 + 25 = 115, and 115 ÷ 5 = 23. The average "moves" one candle at a time. That's why it's called a moving average.
Why it matters
An SMA smooths out the noise. Instead of reading every jumpy candle, you see the general direction.
- Price above a rising SMA: the recent trend points up.
- Price below a falling SMA: the recent trend points down.
- Flat SMA, price crossing it often: probably a sideways market.
The 50-day and 200-day SMAs are the most watched on stock charts. Because so many people look at them, price sometimes reacts near them. More in moving averages explained.
SMA vs EMA in one line
The SMA counts every candle equally. The EMA leans on the newest ones. So the SMA is steadier but slower to turn. See EMA vs SMA.
A common mistake
Using it as an exact line. Price rarely stops exactly on a 50-day SMA. It may poke through by a little and turn back. Treat the average as a zone, not a laser line, and judge it by where candle bodies close.
An SMA only tells you what the average was. Check the last turning points on the chart for the full picture.
Questions
What is the 200-day moving average?
The average close of the last 200 trading days, roughly 10 months. Many investors use it as a rough line between a long-term uptrend and downtrend.
What is a golden cross?
When the 50-day SMA crosses above the 200-day SMA. A "death cross" is the reverse. Both lag, because both averages are slow.
What period SMA should beginners use?
The 20, 50 and 200 are the common ones. Pick one or two and learn how price behaves around them, rather than stacking many.
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