What Does Simple Moving Average (SMA) Mean?
A moving average that is calculated by simply adding the closing price of a security for a number of periods and dividing the total by the number of periods; short-term averages respond quickly to price changes in the underlying securities, whereas long-term averages are slow to react.
Investopedia explains Simple Moving Average (SMA)
Generally, this is the average stock price over a certain period. One should keep in mind that equal weighting is given to each daily price. As shown in the accompanying chart, many traders watch for short-term averages to cross above longer-term averages to signal the beginning of an uptrend. As shown by the arrows, short-term averages (e.g., 15-period SMA) act as levels of support when the price experiences a pullback. Support levels become stronger and more significant as the number of periods used in the calculations increases. The term “moving average” refers to a simple moving average. This is important, especially when one is comparing it with an exponential moving average (EMA).
Related Terms:
• Moving Average—MA
• Resistance
• Support
• Technical Analysis
• Volume
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