Technical & Chart AnalysisSMAArithmetic Moving Average
Simple Moving Average (SMA)
The unweighted mean of the last N closing prices, recalculated each period as the window rolls forward.
What Simple Moving Average (SMA) means
A simple moving average is the unweighted arithmetic mean of the last N closing prices. Each period in the lookback window carries identical weight, and the value is recalculated whenever a new period closes: the newest close enters the window and the oldest drops out. Because of that equal weighting, the SMA responds to a data point leaving the window just as strongly as to the newest price arriving, which can produce a visible shift in the line even when current price is barely moving. Common settings are 20, 50, 100 and 200 periods.
The SMA is the reference average for institutional chart work, and the 200-day version in particular is watched widely enough that its level becomes a psychological reference in its own right. It is also the centre line of Bollinger Bands, which use a 20-period SMA with bands two standard deviations away. Its weakness relative to an exponential average is responsiveness: with equal weights the SMA lags more at turning points, which is the price paid for its smoother, less signal-prone line.
Worked example
If the last 20 EUR/USD daily closes sum to 21.7000, the 20-period SMA is 1.0850; when a close of 1.0890 replaces the oldest value of 1.0810, the sum becomes 21.7080 and the average rises to 1.0854.
Related terms
- Moving AverageA line that averages price over a rolling lookback window in order to smooth noise and reveal underlying direction.
- Exponential Moving Average (EMA)A moving average that weights recent prices more heavily, so it reacts faster to new information than an SMA.
- Bollinger BandsA 20-period moving average with bands two standard deviations above and below, so width tracks volatility.
- TrendA sustained directional bias in price, conventionally defined by a sequence of higher highs and higher lows, or the reverse.
Frequently asked questions
What does Simple Moving Average (SMA) mean in forex trading?
The unweighted mean of the last N closing prices, recalculated each period as the window rolls forward.
How does Simple Moving Average (SMA) work in practice?
The SMA is the reference average for institutional chart work, and the 200-day version in particular is watched widely enough that its level becomes a psychological reference in its own right. It is also the centre line of Bollinger Bands, which use a 20-period SMA with bands two standard deviations away. Its weakness relative to an exponential average is responsiveness: with equal weights the SMA lags more at turning points, which is the price paid for its smoother, less signal-prone line.
What is an example of Simple Moving Average (SMA)?
If the last 20 EUR/USD daily closes sum to 21.7000, the 20-period SMA is 1.0850; when a close of 1.0890 replaces the oldest value of 1.0810, the sum becomes 21.7080 and the average rises to 1.0854.
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