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Simple Moving Average (SMA)

Simple Moving Average (SMA) is one of the easiest method in Technical Analysis. SMA indicates the average price (closing.opening) of a given time period, where each of the chosen periods carries the same weight for the average.

The maths behind SMA is simple. For example you are developing SMA chart for USD/JPY closing price in 5-day time frame. The first 5 days USD/JPY closing prices are 125.0, 124.0, 126.0, 123.0, 127.0 -- thus the first dots of your SMA graph will be 125.0 (average of the first 5 days USD/JPY closing price). Assume the USD/JPY closing price is 126.0 for day sixth, your second SMA point will be (124.0 + 126.0 + 123.0 + 127.0 + 126.0)/5= 125.2. The calculation goes on for the following dots and SMA chart is defined by joining these SMA dots.

SMA graph "moves" because for each calculation, we use the 'latest number of time periods' data and drop the oldest data.

Related links and readings

Wikipedia: Momentum Trading
General knowledge on momentum trading, including examples in Simple Moving Average (SMA) calculations.
http://en.wikipedia.org/wiki/MACD

Wikipedia: Moving Average
General knowledge and overview on all Moving average indicatoirs, including: Moving Average (MA), Simple Moving Average (SMA), and Exponential Moving average (EMA).
http://en.wikipedia.org/wiki/MA

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