SMA (simple moving average)

The Simple Moving Average (SMA) is a technical indicator that smooths out price data by creating a constantly updated average price. It is calculated by summing the closing prices of an asset over a set number of periods and then dividing the total by that number of periods. For example, a 20-period SMA adds the last 20 closing prices and divides by 20. This process is repeated for each new period.

Retail traders use SMAs to identify trend direction, potential support or resistance levels, and to generate buy or sell signals. A common strategy involves observing crossovers of different SMAs, such as a 50-period SMA crossing a 200-period SMA. While easy to understand, SMAs are lagging indicators, meaning they reflect past price action and may produce delayed signals in fast-moving markets.