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Glossary · Indicators

SMA (Simple Moving Average)

The average closing price over a set number of periods, each weighted equally, used to smooth price and show its direction.

By Sky Trade editorial teamUpdated

A simple moving average adds up the last N closing prices and divides by N. A 20-period SMA on M5 is the average close of the last 20 five-minute candles; each new candle adds a price and drops the oldest one.

SMAs smooth out noise and show direction: a rising SMA with price above it describes an uptrend. Traders use them as dynamic support and resistance, as trend filters (“only Higher trades above the 50 SMA”) and in crossovers between a fast and a slow average.

Their weakness is lag. Because every price in the window counts equally, an SMA reacts slowly to new moves. It can also jump when an old, extreme price drops out of the window, a quirk that creates signals without new information. The EMA addresses the first issue by weighting recent prices more heavily.

There are no magic periods. 20, 50, 100 and 200 are popular because many people watch them, which can make them self-fulfilling for a while, not because the numbers are special.

The Sky Trade terminal offers SMA alongside EMA, WMA, Hull MA, DEMA and TEMA. See moving averages: SMA and EMA.

Example

The last five closes are 1.0850, 1.0854, 1.0849, 1.0857 and 1.0860. Their sum is 5.4270, so the 5-period SMA is 5.4270 ÷ 5 = 1.0854.

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