The Simple Moving Average, SMA, is the most common indicator out there and is a definite must to understand for any aspiring technical analyst. Simple Moving Averages, as their name suggests, are the generic moving average because of the way they are calculated.
What is an SMA?
An SMA is based on a particular time period so an SMA 14 is based on 14 periods whilst an SMA 30 is based on thirty periods. The larger the number of periods the less reactive the SMA is to recent price moves and as such the SMA is a momentum indicator as it moves based on price swings in the underlying.
How does the SMA Work?
The SMA is calculated by taking the number of periods required and summing the closing the price values at the close. So if you are calculating the SMA 12 for the price at 12 PM then take the price each hour before that until 1PM - then sum them up. The next step is to divide the total by the number of periods. It is just the average price for the number of periods.
Often simple moving averages are used in conjunction with each other to spot trend reversals and shifts in momentum. For example when a short term SMA is below a longer term one and then crosses it - you have indicated an upward shift in momentum that is a buy signal.
Example Chart SMA and Analysis
If you look at the Bitcoin price chart above you can see two cross overs of SMA 5 (Yellow) and the SMA 20 (green). The first cross over shows the SMA 5 crossing over the SMA20 from above indicating a change in trend and an indication to sell. The second (green circle) is indicating a buy signal as the SMA 5 crosses the SMA 20 to the upside.
- How to trade Bitcoin with the Relative Strength Index?
- How to trade Bitcoin and other Crypto Currencies Using an EMA?
- How to trade Bitcoin and other Crypto Currencies Using Bollinger Bands?
- How to trade Bitcoin with an MACD Indicator?
- Trading Crypto Currencies with a Stochastic Oscillator?
- Trading Crypto Currencies with the Accumulation Distribution Line?
- Trading Crypto Currencies with the Aroon Indicator?
- Meet Business.Club: A Crypto Wallet Provider with Debit Cards Sponsored
- A Guide to Using the Tokens.Net Exchange Sponsored
- Top Cryptocurrency Faucets to Earn Free Crypto in 2020
- CRYPOTAG's New ‘Zeus’ Product: Leaner and Easier Than Ever
- 5 Easy and Safe Ways to Earn Free Ethereum in 2020
- How Blockchain Technology Can Provide A Global Software-as-a-Service Platform
- Meet Utopia: The All-In-One Superapp for Privacy-Conscious Cryptocurrency Users
- Lykke: A 'World-Class' Cryptocurrency Exchange
- eToro Debuts CopyTrader in the U.S. to Drive Mass-Market Participation in Cryptocurrency Trading
- Get an Edge in Trading Forex, Stocks and Crypto With Elitetrading
This website is only provided for your general information and is not intended to be relied upon by you in making any investment decisions. You should always combine multiple sources of information and analysis before making an investment and seek independent expert financial advice.
Where we list or describe different products and services, we try to give you the information you need to help you compare them and choose the right product or service for you. We may also have tips and more information to help you compare providers.
Some providers pay us for advertisements or promotions on our website or in emails we may send you. Any commercial agreement we have in place with a provider does not affect how we describe them or their products and services. Sponsored companies are clearly labelled.